Since the beginning of the year, several major banks have announced they will no longer do business with the private prison industry. Activists have targeted these lenders, and the financing of private prisons has become a Democratic presidential campaign issue.
In 2016, an order was signed by President Barack Obama to reduce private prison usage. The Department of Justice found such facilities were neither as safe nor as secure as those run by the government. Up entering the White House, President Donald Trump reversed Obama’s order. Trump’s decision especially benefited the industry’s two largest operators.
Also, since Trump took office, spending for Immigration and Customs Enforcement (“ICE”) for detention centers at private prisons has risen significantly. The private prison industry cares for about 70 percent of ICE detainees. More than 20 people in ICE detention died while in custody between 2016 and 2017. Currently, roughly 8.5 percent of the nation’s prisons are run privately, subsidized by taxpayers and big banks.
Real Estate Investment Trusts
In 2013, CoreCivic and Geo Group, the two largest players in the private prison industry, changed their structure and became Real Estate Investment Trusts (“REITs”), allowing them to benefit from a lower tax rate. However, by law, a REIT must distribute at least 90 percent of profits to shareholders, but the companies don’t pay taxes on the gains. The REIT structure means the private prison companies may prove short on cash and require financing to continue operations.
Legislation has been introduced to stop REIT qualification for private prisons but has gone nowhere to date.
The Private Prison Financing Exodus
In January, Wells Fargo was the first major bank to announce it would no longer provide funding for the private prison industry. JP Morgan Chase was next in line two months later, the first Wall Street bank to take such a stand. Bank of America announced its decision not to finance the industry in June, and SunTrust made the same determination a few weeks later. Internationally, France's BNP Paribas reported it was getting out of the private prison financing business in mid-July.
CoreCivic and Geo Group may have outstanding loans with these lenders that are not affected by the decision to stop private prison financing. This debt may take the companies years to pay off. For example, Bank of America agreed to lend $90 million through 2024 to one private prison company shortly before announcing it was ceasing such loans.
The Private Response to Public Pressure
Why are banks suddenly deciding to get out of the private prison business? Bank of America’s response was straightforward:
“The private sector is attempting to respond to public policy and government needs and demands in the absence of long-standing and widely recognized reforms needed in criminal justice and immigration policies,” as per a Bank of America statement. Groups such as The Families Belong Together (TFBT) corporate accountability campaign, made up of more than 100 organizations, put pressure on banks to stop the lending. Media coverage of family separations, children in cages and poor conditions at detention centers helped drive the anti-private prison financing movement. As TFBT puts it, “The big banks should not be in the business of tearing families apart or torturing and killing migrants.”
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