Markets

Why big banks could be killing private prisons

VIDEO21:2021:20
Why big banks could be killing private prisons

Private prison companies have been a source of debate since they were established in the 1980s. Activists argue it is wrong to profit from incarceration, while proponents claim that privatization saves money and provides higher quality care.

Nevertheless, the companies were born out of necessity, during the tough-on-crime and war-on-drugs era. The country was incarcerating more people than ever, and the U.S. government couldn't keep up.

The private prisons sector quickly grew into a multibillion-dollar industry and blossomed through Democratic and Republican administrations alike. During the Obama administration, the detention of Central American migrants took off. With that, so did the federal funding of private detention centers. Companies own or manage 75% of U.S. detention facilities. Two of the biggest companies, CoreCivic and The GEO Group, are publicly traded. In the correctional system, however, less than 10% of state and federal inmates are in the care of private prisons.

In 2016, then-Deputy Attorney General Sally Yates announced that the federal government would be phasing out private prisons. Stocks crashed as investors worried about the future. Months later, the Trump administration came into power, and rescinded the Yates memo. The industry boomed again.

In 2018 alone, private prison companies received about $2.3 billion in federal immigration and corrections contracts, according to data compiled by Public Citizen.

But 2019 has been a publicly challenging year for the industry. In the wake of the zero tolerance policy at the U.S.-Mexico border, the American public became increasingly vocal against the separation of families and the conditions in which migrants were detained. Activists denounced private prison companies and some Wall Street banks as profiteering on detention.

The Families Belong Together coalition was formed out of 250 different organizations. Among other things, the group's divestment campaign collected over 1 million signatures urging J.P. Morgan Chase and other banks to separate themselves from CoreCivic and The GEO Group.

In March, J.P. Morgan announced that it would no longer finance private operators of prisons and detention centers. Seven other banks followed suit. In June, Democrat Elizabeth Warren said she would abolish the industry if she were elected president. Other candidates have espoused similar intentions. The largest pension fund in the country is divesting, and several states are passing laws to phase out private prisons. The stocks of The GEO Group and CoreCivic have fallen by 30% since June.

Watch the video above to learn more.

Correction: This report was revised to correct that companies including CoreCivic and The GEO Group own or manage 75% of U.S. detention facilities.