When For-Profit Prisons Become the Crime

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Prison Lawsuit Sealed Documents
AP/Charlie Litchfield
According to Idaho state law, defendants found guilty of the crime of false imprisonment can be punished by as much as a year in prison, or a fine of up to $5,000, or both. One company found guilty of breaking the law whilst imprisoning people, however, has been getting paid $29 million a year for its services.

Over the course of the past decade, private prison-operator Corrections Corporation of America (CXW) -- one of several for-profit prison operators that have been grabbing headlines in America lately -- has been accused of mismanaging the 2,080-bed Idaho Correctional Center south of Boise.

In March 2010, the company was sued by the ACLU , which alleged that CCA guards at the Correctional Center were permitting violent convicts to beat up other inmates with impunity. In one notable instance, video was obtained showing inmates beating a fellow inmate unconscious, while guards looked on, and made no attempt to interfere.

In a separate lawsuit in 2012 , eight inmates at the Center sued CCA, alleging prison staff collaborated with violent prison gangs with names like The Aryan Knights and The Severely Violent Criminals, using the gangs to enforce discipline at the facility. According to the ACLU, the situation at the Center was so bad that inmates had taken to calling it "Gladiator School." (CCA denies the allegations.)

In September of last year, a federal judge held CCA in contempt of court for violating a legal settlement it had entered into, under which it promised to hire more prison guards to remedy understaffing at the Center and improve inmate safety -- both of which it failed to do.

White-Collar Crime? Now This Is Serious!

Allegations have also touched on possible white-collar crimes. CCA is alleged to have falsified its payrolls, showing the state staffing reports that reflected thousands of hours worked by prison guards in jobs that were actually unfilled. IN fact, CCA admits these accusations, but argues they amounted to only "a fraction" of the company's payrolls.

Yet this "pocketbook issue" may have been the one that finally gotten somebody's attention. On Friday, Idaho Gov. C.L. "Butch" Otter confirmed that he's taking the Center back under state control.

Crime Pays

In exchange for keeping watch over its prisoners (or failing to), CCA collects $1.7 billion in annual revenues, earning a staggering 17 percent profit margin on the business.

For comparison, that's twice the profit margin earned by Exxon Mobil (XOM). Prisoners are nearly as profitable for CCA as smartphones and Internet ads are for Google (GOOG) -- netting it more than $300 million in profit last year.

And despite the loss of its Idaho contract, CCA remains a major player in the national for-profit prisons industry. Across the country, in 19 other states and the District of Columbia, Corrections Corporation of America owns and manages some 47 prisons -- and manages an additional 19 that it does not own. Even after the 2,080-bed Idaho Correctional Center reverts to state management, more than 90,000 prisoners will continue to reside within walls patrolled by CCA employees.

And, in one final twist, though Gov. Otter has acted to protect some of his citizens by reasserting control over the Idaho Correctional Center, he's not protecting all of his state's felons from physical violence sponsored under CCA's corporate umbrella. Within Idaho borders, prisoners may no longer have cause to fear, but the company still has a contract to house up to 800 Idahoan inmates in its Kit Carson Correctional Center in Burlington, Colo. Unless the state decides that violations at the Idaho Correctional Center justify terminating the outsourcing contract too, that one still has at least six months left to run.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google.
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