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Locking away profits:
Capitalizing on immigrant detentions has
turned into a booming business for Lehman Brothers.

Color Lines Magazine September 2002
By: Karen Juanita Carrillo

"It's clear that since September 11, there's a heightened focus on detention, both on the borders and in the U.S.," Steven Logan, CEO of Cornell Companies, Inc., boasted to his investment analysts this past October.

"What we are seeing is an increased scrutiny, a tightening up of the borders," Logan said during a conference call recorded in the company's audio archives. "Some of that means that people don't get through. But the other side of that is more people are gonna get caught. So I would say that's positive. And if anything, the federal system--that is already overburdened-is indicating to us that they need even more help as a result of 9/11.

"So that's a positive for our business." Logan's Cornell Companies Inc. is in the business of operating for-profit private prisons--correctional facilities and detention centers that look for earnings growth in locking people up. Cornell Companies Inc. along with Wackenhut Corrections Corporation, Management and Training Corporation, Correctional Services Corporation, and the Corrections Corporation of America (CCA), are among the top for-profit private prisons in the United States.

Judith Greene, a criminal justice policy analyst and Open Society Justice Foundation fellow, notes that prison privatization got its start in the 1980s, under the Reagan Administration. With the push to "get government off our backs," prison privatization became a highlighted goal that promised to reform prisons, turning them into clean, well-run facilities operated at little taxpayer expense. Instead of taxpayers footing the bill, for-profit prison shareholders would be taking on the expense of housing, educating, and rehabilitating prisoners, market analysts promised.

But an industry that began with government contracts to build INS processing and detention centers some 15 years ago was near bankrupt by the end of 2000. Low crime rates and the cancellation of state contracts because of several scandal-ridden and poorly operated private prisons made the industry look feeble. Even private prison industry leader CCA was ready to call it quits, until the investment bank Lehman Brothers stepped in to help.

"Lehman Brothers is the number one financier of the private prison industry," said May Va Lor, an organizer with the New York City-based student and community activist group Not With Our Money (NWOM). "Investment banks fund predatory loans, they fund globalization projects, they do horrible things--just pick one. But no other investment bank is as involved in the private prison industry as Lehman Brothers is."

As an investment bank, Lehman Brothers raises capital for various industries by underwriting investment bonds, packaging loans, and arranging company credit lines. The bank also issues higher education bonds for many state universities and community colleges, and most of the larger state pension funds have some fraction of their portfolio with Lehman Brothers Holdings Inc. Recently, in an effort to pump capital into a flagging prison industry, Lehman helped CCA refinance for some $785 million. It also assisted Cornell Companies Inc., the fourth largest publicly traded private prison, write off some of its debt so that the company could expand its operations.

NWOM is a relatively new activist campaign--an offshoot of recent student-led boycotts against the Sodexho Mariott Services corporation. Sodexho Mariott runs cafeteria services on many university campuses. But because Sodexho's parent company, Sodexho Alliance, was a large shareholder of CCA, student activists at over 50 of the 500 schools Sodexho had food service contracts with demanded that their schools end cafeteria contracts with the company for as long as the company refused to divest from private prisons. Student sit-ins were held at schools like Buffalo State (SUNY), Ithaca College, Arizona State University, and the University of Texas at Austin. And Sodexho contracts at Howard University, American University, Oberlin, and the University of Binghamton came to an end because of organized protests. Sodexho's final divestment from CCA this past May has led the fight against private prisons into another direction.

NWOM, an organizational member of North Carolina-based Grassroots Leadership's campaign to spotlight companies that aid the operating of prisons for profit, kicked off its Lehman Brothers boycott on college campuses on Valentine's Day 2002. At the University of Wisconsin, UC Berkeley, UC Riverside, and the University of Arizona, students handed out leaflets and candy hearts inscribed with anti-prison profit messages like "No More Prisons!" and "Stop Prison Profits!" This first action was meant as a public education vehicle, using the symbol of Saint Valentine--who ministered to prisoners--to show that there ought to be more talk of compassion and less concern with making a profit on the backs of the incarcerated. The Valentine's Day kick-off was designed to let students at these schools know that Lehman Brothers not only funds prisons, but also helped underwrite bonds for their campuses.

This past April, NWOM joined a coalition of activists asking New York City Comptroller William Thompson to stop accepting Lehman's issuance of city bonds until the investment bank ceases work with the private prison industry. And NWOM has initiated a postcard campaign depicting immigrants leaving boats and eager to enter the United States, but walking into large prison cells--funded by Lehman.

So far, there's been no call for new prison buildings or detention facilities as a result of 9/11. But the federal government has asked the Justice Department's Office of the Detention Trustee for an assessment of how many private and public prisons the country has, and how many local jails are available to house detainees--just in case. The Justice Department's proposed budget for 2003 asks for a total of $1.4 billion for detainee bed space, an increase of $95.6 million.

The government has allocated $5 million to the DOJ for the creation of an "electronic detention space clearinghouse"--a national online database to record the number of beds available in each facility. The DOJ says it will assess whether more prisons need to be built once it has this information.

But anti-prison activists argue that, ultimately, if there's open bed space, more repressive policies will be proposed to fill those beds. As the saying goes, "If they build it, they will come." It becomes a cycle where each wheel in the spoke enables the other, and every one on the business end makes more money.

Federal and state governments might also get advice about the need for more prisons from lobbying groups like the rightwing American Legislative Exchange Council (ALEC). Private prison companies pay ALEC's Criminal Justice Task Force to draft model criminal justice legislation, which is then passed on to lawmakers. ALEC has assured its funders that its models have helped force passage of regressive "three strikes" and "truth in sentencing" laws in a number of states.

Just after September 11, Wall Street analysts were expecting to see profits in the prison industry. Private prison executives, in particular, boasted that earnings would surely increase with the federal government locking up so many Middle Eastern and South Asian immigrants. Speculative quotes about pending profits that many companies posted on their websites have since been deleted.

"Right now companies are fixated on the idea that because of 9/11 they're going to get new prisoners," Greene said. "We don't know how many post-9/11 detainees they've got or how many they've held. They've got these people in virtual secret detention--mostly because of visa violations, which is not a criminal but a civil issue. This is not something that people were detained for previously.

"Despite 9/11," she added, "the number of immigrants actually convicted for crimes in general has gone down."

Even without more convictions, the post-9/11 climate has meant increasing detentions. With beds that need to remain filled, even immigrants who sign voluntary deportation agreements have been kept in detention centers past their release dates, as prison authorities claim they don't have the right paperwork to grant their release.

By June 2002, the DOJ claimed to only be holding 74 of an originally stated 1,200 detainees rounded up after 9/11. Attorney General John Ashcroft claimed that ongoing secret detention hearings had led to the deportation of the other 1,126 immigrants in custody. But there is currently no way to verify this information. And meanwhile, any immigrants still in federally contracted jails or prisons are earning their keepers an estimated $70 to $75 per bed, per day.

"There weren't many people even looking at the issue of immigration detentions prior to 9/11," notes NWOM organizer Kevin Pranis. "If people were focusing on immigrants, they were mostly looking at individual cases, not systematically looking at the big money business is making from this."

Even if more prisons are not currently justified, a publicly traded, for-profit prison always needs to cut costs and show shareholders that the business is meeting its bottom line. According to the contracts most private prisons work under, no matter how many prisoners the complex is holding, the prison has to keep a certain level of staff on hand and provide a number of basic services. And because the facilities receive a per diem fee for every bed that's filled, the more empty beds they have, the less money they make.

"They have to worry about meeting their quarterly revenue projections. They have to worry about what the Wall Street investors or what their board of directors will say," Greene said. "The incentives on the private prison side are just really perverse. These companies have to come in and say they're nor only going to perform well, they're going to make a profit!"

During a recorded conference call this past February, George Zoley, the vice chairman and CEO of Wackenhut Corrections, promised his investment analysts that illegal entries into the United States, coupled with new border security and anti-terrorism legislation, would inevitably lead to the need for more immigrant detention and privatized corrections facilities.

"It's almost an oddity," Zoley told analysts, "that given the size of our country and the number of illegal immigrants entering into our country, that we have such a small number of beds for detention purposes, and I think this has become an issue under the 'homeland security' theme, and I think it's likely we're going to see an increase in that area.

NWOM's Lor, whose organization is planning a skill-building conference in October for Lehman Brothers boycott organizers from the Universities of Connecticut, Wisconsin, California, Texas, Arizona Stare, and North Carolina Stare, says that their role is to hold corporations accountable.

"Investment banks like Lehman Brothers and others on Wall Street have been facilitating the flow of private capital into prisons for decades now--and nobody holds them accountable. Our role is to hold them accountable for these incestuous relationships, because they are profiting from human rights abuses. We have to demystify how Wall Street works and show that you can take on a major company and win."

RELATED ARTICLE: Lehman Brothers' For-Profit Prison Deals

1997: Becomes one of the underwriters of the $113 million initial public stock offering of shares in Prison Realty Trust Corporation, the real estate investment company of Corrections Corporation of America.

1997: Underwrites $34.5 million offering for Wackenhut to win a contract for the first privatized mental health prison--a 500cell/1,000 prisoner facility that makes $52 per prisoner per day.

1998: Issues $59 million in revenue bonds to help CCA win the contract for a private prison for the Idaho State Building Authority.

2001: Helps Cornell Companies transfer some of its prisons to an affiliated business so it can write off debts and free up capital to build a new prison for immigrants in Mississippi.

2002: Loans Corrections Corporation of America $785 million to refinance its debt following the loss of state contracts.

Karen Juanita Carillo is a writer and photographer in Brooklyn, NY who has reported for The Amsterdam News.

Copyright 2002 Color Lines Magazine



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