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WALL STREET’S NEW PRISON SCAM  
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Katya Schwenk
February 13, 2024
The Lever
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_ As states crack down on prison-phone price gouging and resulting
government kickbacks, telecom companies and their private equity
backers have new ways to game the system. _

An inmate reads from a tablet on his bunk at the Corrections
Transitional Work Center in Concord, NH., (AP Photo/Charles Krupa)

 

As part of a growing effort to stop prison telecom monopolies from
charging exorbitant fees for calls between prisoners and their
families, last year Minnesota became one of the first states to make
all phone calls free for prisoners. And to eliminate the kickback
system perpetuating the scheme, the state barred its agencies from
collecting commissions on prison phone services, as well as on video
calling and e-messaging. 

But records obtained by _The Lever_ show Minnesota’s Department of
Corrections still collected hundreds of thousands of dollars in
kickbacks last year from commissions on other prison services private
telecom companies controlled — including money transfers, music
access, and other entertainment behind bars. All in all, the records
suggest the telecom firms brought in nearly $3 million in revenue from
an ever-increasing array of non-phone prison services in the state. 

Minnesota, which was the fourth state in the country
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make the government, not prisoners, pay for phone calls, is a case
study in how prison communication companies and their private equity
owners have managed to preserve their symbiotic relationship with
state corrections agencies despite reforms — at the major expense of
incarcerated people and their families. 

According to a Minnesota state watchdog agency, under a current prison
contract, people in state prisons must pay
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$1.06 and $1.99 to listen to a single song on state-issued devices.
Under a new contract with another telecom vendor, the cost will
increase to up to $2.36 per song — and the state will pocket a
bigger cut of the revenue.

“For-profit telecom companies are making hundreds of millions of
dollars from incarcerated people and their families, while Minnesota
families are going into debt to stay connected with their loved ones
through phone calls and video calls,” said Margaret Zadra,
Minnesota’s Ombudsperson of Corrections. “For-profit companies
should not be allowed to erode that connection to line their own
pockets.”

As digital tablets become increasingly ubiquitous
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bars, criminal justice reform advocates say Wall Street is poised to
control and monetize an ever larger share of the daily lives of this
captive audience. 

“The ideal world for the private equity owners of these companies is
every prisoner has one of their tablets, and every one of those
tablets is hooked up to the bank account of someone outside of prison
that they can just drain,” said Paul Wright, the executive director
of the advocacy group Human Rights Defense Center, which for years has
led a campaign to lower prison telecom costs.

In 2023, Minnesota’s corrections agency collected $274,365 in
kickbacks from prison telecom companies’ newest offerings, like
music, games, and money transfers. That commission revenue, thanks to
a long-delayed contract with a new vendor, is poised to more than
double in coming years. Most of these revenue sources likely will not
be affected by the new phone law.

Aaron Swanum, a spokesperson for the Minnesota Department of
Corrections, wrote in a statement to _The Lever_ that the agency
uses commissions from telecom companies “to cover costs of services
to benefit the incarcerated population — TV, recreational equipment,
etc.”  

But Wright says the continued revenue and kickbacks are emblematic of
how prison telecom vendors have succeeded in finding new areas in
which to gouge profits from prisoners and their families, despite
efforts to rein in the companies.

“It’s kind of like stepping on a balloon — you squeeze it down
in one place, and it just bulges up somewhere else,” he said. “And
that’s the problem we’ve got with these companies.” 

They are, Wright explained, constantly “striving to boost their
money streams in places that aren’t regulated.”

The Rise And Fall Of Prison-Phone Profits

In Minnesota and elsewhere, advocates have pushed
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people trapped in the criminal justice system maintain connections
with the outside world, which research demonstrates
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critical to successful reentry.  

“Studies show that people who maintain strong family and community
ties find it easier to reenter society to become part of their
community again, and have lower recidivism rates,” said Catherine
Ahlin-Halverson, a staff attorney at the American Civil Liberties
Union of Minnesota.

But over the past several decades, maintaining that contact over the
phone has become enormously expensive for incarcerated people and
their families, thanks to the monopoly contracts that states have
awarded to prison telecom companies. People in prisons are, quite
literally, a captive market: Companies can charge endless fees
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sky-high rates and then split the profits with state and federal
corrections agencies, and make millions in the process. 

In particular, reformers have taken aim at prison telecom’s
kickback model
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which prisons take a cut of fees charged to prisoners, money that is
often funneled to funds with little oversight. Kickbacks, activists
argue, incentivize officials to keep costs in prisons high. 

Before July 2023, when Minnesota’s new law took effect, people
locked up in the state’s prisons were charged 4 cents per minute for
a phone call. Sixty percent of the revenue for calls went to the
prison telecom company that provides phone services across the state
prison system. The remaining 40 percent — 1.6 cents per minute —
went to the Minnesota Department of Corrections.

In 2022, Minnesota made $1.3 million off these so-called “site
commissions” from the contract with its prison phone provider,
according to records obtained by _The Lever_.

A larger share of the pie went to ViaPath Technologies, formerly known
as Global Tel Link, which is Minnesota’s primary prison
telecommunications vendor. The company has its roots in the “prison
boom”
[[link removed](CSMC2005).pdf] of
the 1980s, when the private sector began cashing in on a rapid
national expansion of incarceration in both state and federal prisons.
ViaPath was among the first firms to turn prison phones into a
multimillion-dollar business. And for years, phone calls alone were
enough for the company to turn a profit.

“As recently as probably 10 or 12 years ago, if you looked at a
balance sheet for these companies, 98, 95 percent of their money was
coming from telephone revenues,” Wright explained.

The healthy profit margins for such ventures attracted private equity
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which saw in prison telecom easy returns on investment. Over the
past two decades
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ViaPath has been tossed
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major private equity firms, bouncing from Goldman Sachs and Veritas
Capital to, most recently, American Securities, which says its
portfolio of companies brings in $46 billion
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ViaPath’s main national competitor, Aventiv Technologies, is backed
by Platinum Equity
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a firm founded by billionaire and Detroit Pistons owner Tom Gores.
Together, the two companies control an estimated 90 percent
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the prison telecom market.

Critics say that private equity firms, notorious for ruthless
profiteering, create especially perverse incentives in the prison
industry
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“Firms benefit from increased incarceration — the more people
using food or healthcare services, the more money they make,” the
Private Equity Stakeholder Project, a private equity accountability
group, wrote in a recent article
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investigated private equity’s massive foothold in incarceration.

ViaPath’s predatory business practices are well documented. The
company was implicated in a bribery scheme
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Mississippi that sent the state’s corrections boss to federal prison
in 2017. A 2015 class-action lawsuit
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the company of seizing money from inactive accounts of people making
calls to prisons and jails, forcing ViaPath to pay out a $67 million
settlement. Other lawsuits have accused ViaPath
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as well as Aventiv’s subsidiaries, of improperly recording
attorney-client phone calls.

But the outlook on the prison phone call industry began to change when
the Federal Communications Commission, which regulates phone and other
communications, handed down new rules during the Obama administration
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capped per-minute fees that companies could charge for prison calls.
Despite some rollbacks
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Donald Trump’s presidency, the rate caps remain, and the Federal
Communications Commission has indicated
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plans to strengthen the rules in the coming months, threatening to eat
further into prison telecom’s profits.

At the same time, the number of states offering free phone calls in
prisons is multiplying at a rapid clip. 

“This is a very fast-moving trend,” explained Bianca Tylek, the
founder and executive director of Worth Rises, an organization
that has led the campaign
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free prison phone calls across the country, including in Minnesota.
Connecticut was the first state to enact a free-call policy in 2021.
Now, Tylek said, “there are probably about a dozen states that are
considering legislation in 2024 to make communication free.”

Vendors like ViaPath will in most cases keep their contracts in these
states, and continue making money from prison phone calls. But now it
will be the state who is paying, not people in prison — meaning that
the state has a stake in keeping rates low. 

“Now the government is on the hook for paying the bill, and is
likely to be more aggressive in its negotiations,” Tylek
explained. 

In a recent lender presentation obtained by _Bloomberg_
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ViaPath executives claimed looming reform efforts would “drive
stability” for the company. But industry analysts have been less
optimistic, calling
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trend toward the free-call model in particular a “risk to
profitability.” ViaPath has posted mediocre financial results in
recent years, and Aventiv has been struggling to refinance more than
$1 billion
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debt. 

In response, the prison telecom industry has begun pitching new
products to prisons and jails
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they can still freely charge exorbitant fees: Music streaming,
e-messaging, video calling, and movies, all hosted on tablets, and all
monetized.

“It really appears that in a lot of places, the majority of revenue
that companies are bringing in is from non-phone products,” said
Wanda Bertram, an analyst with the Prison Policy Initiative, a
nonprofit that conducts research on mass incarceration.

In a statement to _The Lever_, Sally Ewalt, a spokesperson for
ViaPath wrote, “ViaPath will continue to provide communication
products for incarcerated individuals and their loved ones while also
continually expanding its offerings, services, and programs.”

Ewalt added that the company had “supported 15 million learning
hours on our tablets to assist people in getting their high school
equivalency, develop life skills, and prepare for work after
release.”

“We Have To Stay Vigilant”

In Connecticut, where Worth Rises waged its first fight against prison
phone fees, advocates faced the lobbying might of Securus
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an Aventiv subsidiary. The company’s opposition to the reforms in
Connecticut in 2019 quickly became a scandal
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however, and since then Securus, along with its parent companies, has
assumed an outwardly neutral position on free prison phone policies.

“Securus understands the importance of keeping incarcerated
individuals connected with their loved ones,” wrote Margita
Thompson, a spokesperson for Aventiv, in a statement to _The Lever_.
“We are committed to making our communications services as
affordable as possible and we implement any funding model selected by
an agency or state.”

In 2023, all was — apparently — quiet in Minnesota as reformers
pushed through free prison phone legislation. “If [the vendors] had
specific pushback in Minnesota, they didn’t contact me,” said
Esther Agbaje, a Minnesota state representative who helped author the
bill
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deliver it through to the governor’s desk. Minnesota’s prison
telecom vendors did not report lobbying in the state last year,
according to state disclosure data. 

Ultimately, the bill passed largely along party lines; Democrats
control both chambers of the state legislature. Minnesota Gov. Tim
Walz, also a Democrat, signed the legislation
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May, and it took effect on July 1. Minnesota’s jails, which are run
at the county level, were not covered by the new law.

Along with making the state foot the bill for all prison phone calls,
the law targeted the kickback system that helped facilitate exorbitant
prison communication fees. As Wright explained, prison telecom
companies often put their money toward sales teams that interact with
state prison officials, rather than lobbyists at the statehouse.
“They’re trying to schmooze the government officials that are
giving them the monopoly contracts,” he said. “They’re spending
a lot of money doing that.”

In part to address this, lawmakers in Minnesota decided to take on the
commissions the Department of Corrections was receiving from telecom
companies. The new law barred the state from collecting commissions
from communications services like video calling or e-messaging in
future contracts.

“Moving away from this kickback model hopefully decreases the profit
incentive in an area that we should be focused on rehabilitation and
person-to-person connection,” said Agbaje.

Yet the state corrections agency is still raking in hundreds of
thousands of dollars in kickbacks that are not covered by the law,
data obtained by _The Lever_ show. Money-transfer charges — fees
to move money into an individual’s prison account — brought the
state $160,000 in 2023 alone. The state received another $48,500 from
music streaming, and $31,000 from the cost of sharing photos.

Swanum, the Minnesota corrections spokesperson, acknowledged the
agency was still receiving the commissions, and did not directly
answer whether or not it would continue to collect them in future
contracts. “We have not had any discussions about commissions
related to non-communications services,” he said.

All this money is currently coming from Minnesota’s contract with
JPay, an Aventiv subsidiary, which offers the Department of
Corrections a five percent commission on most of its offerings. But in
recent months, Minnesota has been preparing to roll out prison tablets
made by ViaPath — a move that would likely quadruple the amount of
money that the state is receiving in commissions for services like
music or ebooks. 

For such services, the state will get a 20 percent cut of any revenue,
up from 5 percent under the JPay contract, according to a recent
report
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the Minnesota Office of the Ombuds for Corrections, a state watchdog
agency.

Bertram at Prison Policy Initiative said it has proved more difficult
to regulate entertainment and money transfers in prisons — in part
because these services are more easily dismissed as frivolous.
“People will say, ‘Okay, phone calls are one thing, but text
messages or games or movies — these are luxuries,’” said
Bertram. “When really I think it’s all a matter of consumer
protection.”

The rise of free prison phone calls still represents a significant
victory for criminal justice reformers. Connecticut, where such calls
have been free since October 2022, has seen far higher numbers
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phone calls in its prison system. “We have seen people using their
communication services and reconnecting with families,” said Tylek
at Worth Rises. The policy was “really, really successful,” she
emphasized.

But the companies behind those calls are the same ones now looking to
profit from controlling other prisoner services.

“Even though phone call rates are getting a lot better — which
I’m glad about — I think we have to stay vigilant,” said
Bertram.

_Katya is a journalist based in Phoenix, Arizona._

* US Prisons
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* exploitation
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* corporate profits
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