Rape of America’s Workers: Crime Victims – Now Prisoners Given Their Jobs

Today Nevada Workers Lose Jobs to Inmates – Next it Could be your Turn

Third and final segment of the series on Nevada’s situation involving unfair competition by use of prisoner labor

by Bob Sloan, Executive Director, VLTP.net

PRIDE logoBJA logoNCIA logo

“Insourcing”..: there is no current definition for this word in our Urban Dictionary or Websters. I plan to change that by defining in detail the concept of insourcing and who is responsible for the practice of it. First we must compare the word to its cousin, Outsourcing.

Society today is familiar the term “Outsourcing.”  When used in connection with manufacturing it means a company sending work outside the business and having it performed utilizing the labor or expertise of others.  Since the mid ‘80’s most realize to American workers, it really meant sending millions of our jobs overseas where foreign labor was cheap and plentiful

Not so well understood is the term “Insourcing” – Insourcing is is widely used in production to reduce costs of taxes, labor and transportation.  Insourcing describes the process used by corporations to remove jobs from private sector labor markets and “Insource” them to prison industry operations here in the U.S.  This allows for profits more in line with outsourcing, but eliminates the necessity for expensive transportation costs to return the finished goods to U.S. consumers – it also allows manufacturers to attach labels to their goods marked “Made In The U.S.A.”

Insourcing of jobs is the “quiet” elimination of private sector jobs by transfer to prison industries.  Corporations wishing to participate in using prison labor, partner with prison industry operations under the federal Prison Industries Enhancement Certification Program (PIECP or Pie Program).  18 USC 1761(c) is the controlling federal statute of PIECP. Though private sector corporations are prohibited from closing private sector operations in favor of prison operations, they do so without consequence. There are other mandatory requirements that must be followed in order to participate in PIECP, but those also are rarely enforced.

The way these prison partnerships typically work is that a manufacturer wanting to increase profits moves their equipment, technology, materials and unfinished goods to a factory setting within a prison industry facility.  Once up and running, the same products come off the assembly lines and are shipped as before. The difference is this, private sector employees of the company have been terminated or laid off. A handful of employees are usually kept on long enough to train inmates and prison supervisors in the manufacturing used to make the products. Once that is accomplished, they are also eliminated and their positions taken over by a prison industry supervisor.

This Insourcing of labor creates quite a number of unemployed citizens. Burdens are placed on state and community social help programs, unemployment compensation, etc. So while the corporation saves lots of money in labor costs – no more unemployment insurance premiums, less expenses in lease of facilities (usually leased by the prison operators at $1.00 per year), and no more employee benefits such as medical insurance, vacations or paid time off – the communities they vacated are left to fund the displaced unemployed workers. In addition the local government loses taxes that were paid by the corporation, previous landlords of the facilities once leased to the corporations are left with vacant property and local shops and other businesses suffer a drop in sales due to the newly unemployed workers left behind.

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In the two previous segments I have talked about the current situation in Las Vegas involving the discovery of prison labor used in the manufacture of products used in the construction of major projects. The developers and or investors involved in these new construction projects in Las Vegas are all influential, well connected; Andre Agassi, SPB Capital Partners, family members of Thomas & Mack Center and the Bulloch family – all well known to the citizens of Nevada.

To many this was a “new” discovery – the use of prisoners as a cheap labor force.  But this practice has been ongoing now for years, and in particular since 1998 when major movers and shakers in the world of politics, finance, manufacturing and prison operations converged in Washington to discuss “innovative strategies for Prison Industries” and “Policies and Programs in Prison Industries.”

Participants included: the CEO of Prison Rehabilitative Industries and Diversified Enterprises (PRIDE), the first private corporation formed to operate Florida’s entire prison industries; U.S. Attorney General, Janet Reno; Florida Representative Bill McCollum, Texas Representative Ray Allen and a business owner of Genoex, one of the first private corporations to eliminate American workers, replacing them with prisoners.

PRIDE’s CEO was Pamela Jo Davis, the darling of Florida’s newest Governor-elect Jeb Bush, and she also “just happened to be” the Chairwoman of the National Correctional Industries Association (NCIA), a trade group representing prison industries, industry vendors, suppliers, workers and companies using prisoner labor in manufacturing.  Representative Allen (R-TX) was soon to become Chairman of the House Committee on Corrections– and also “just happened” to be a member of the American Legislative Exchange Council (ALEC), serving on their criminal justice task force.  Allen again, “just happened” to also be a registered lobbyist for the NCIA.

This NCIA also “just happened to be” the private association the U.S. government had outsourced oversight of the PIECP to in 1995.

It was this happy group of industrialists, politicians, lobbyists, program regulator and prison industry authorities who met in DC in ’98 to discuss just how prison labor could be exploited – legally, of course – to reduce wages to American private sector workers and increase profits to business owners.  First thing was to find a way to make their actions legal and in order to expand; a means was needed to propose such legislation in every state.  These were the responsibility of ALEC.  With more than 2,000 legislative members representing every state, ALEC had a proven track record (going back more than two decades) of enacting and passing model legislation written by their corporate members.

How about federal laws?  Some worried that since the program they intended to exploit was federally run, how could they avoid federal interference?  That’s where AG Reno could assist.  The PIECP’s parent U.S. agency overseer was the U.S. Department of Justice.  Through a dilution process, the program’s oversight had been transferred first to the DOJ’s Office of Justice Programs, then to the Bureau of Justice Assistance and just 3 years prior to these DC meetings, it had been turned over to the NCIA (along with a sizeable taxpayer grant) to oversee.  In effect the meetings in 1998 was a confluence of greed, opportunity, means and legislative abilities that came together to create the “perfect storm” that became insourcing…and the start point of bleeding jobs away from both the public and private sectors.

Together this group had found a way to reduce labor costs to corporations, remove jobs from the public and private sectors, to weaken the strength and voice of Unions and labor advocates and create a captive, underpaid workforce that could be used to reduce the need for sending jobs offshore.  One has only to Google ALEC + collective bargaining, union busting to find the facts and how they have pursued this over the past decade.

ALEC had already been hugely successful in writing and disseminating model legislation to increase the number of new criminal justice laws; three-strikes, mandatory-minimum sentences, truth-in-sentencing (mandatory 85% of every sentence to be served) and they had increased the penalties for hundreds of existing laws.  Collectively all of these laws were passed coast to coast under the banner “tough on crime.”

Those at the top of politics, business operations and corporate management, and investment firms were made aware of this “new” concept and alerted that huge profits could be made, corporations expanded and political careers advanced by this exploitation.

So it was that the following year, an existing Delaware corporation was quietly “upgraded” with the placement of highly influential individuals at the apex of each of these groups upon the board of directors.  This corporate entity was US Technologies, Inc. (UST) and the board included: General Alexander M. Haig, Jr., former Secretary of State and White House Chief of Staff; The Honorable George J. Mitchell, former Senator from Maine and Senate Majority Leader;  William H. Webster, former Director of both the FBI and CIA;  Rick Rickersten, partner at Thayer Capital, a leading investment management firm headquartered in Washington, D.C.; Hal Wilson and Peter Schiff, Managing Directors of Northwood Ventures LLC and Northwood Capital Partners LLC, venture capital investment firms headquartered in New York; and Arthur Maxwell, President of Affordable Interior Systems,  Inc., one of the 25 largest commercial furniture manufacturers in the United States.  Millions of shares of USXX stock was sold worldwide to investment firms, hedge funds, banks, pension fund accounts, etc.

US Technologies had four wholly owned separate entities, one of which was Labor To Industry (LTI).  UST acquired numerous companies and began transferring manufacturing from private sector to prison industries nationwide.  Products included motorcycles, IT hard and software and furniture among others.  Through LTI, prisoners were hired within prisons, leases were provided to LTI for as little as $1.00 per year, contracts with Geo Group were signed giving exclusive rights to operate any factories attached to Geo run prisons.  In an example of how corrupt this entire enterprise was, we have only to look to Florida, PRIDE and their activities…

In Florida, PRIDE’s CEO, Davis and others were busy lobbying for ALEC’s Prison Industry Act to be adopted by the legislature and were successful with the adoption of §946.522 and §946.523.  Davis immediately formed nine (9) spin-off companies to fully exploit the Pie Program.   Most were for-profit and a couple non-profit.  Using the spin-offs PRIDE marketed PIECP to Florida businesses, attracting several with the promise of cheap labor, reduced facility expenses and increased profits.

PRIDE’s “Pie Program Manager” throughout this period was Brian Connett (the Las Vegas “connection”, now serving as head of Nevada’s prison industries).  Connett negotiated these Pie contracts with the private companies and was responsible for the “legal” operation of all these various industrial programs.  It helped that Connett was also a member of the NCIA and helped develop PIECP policies and trained compliance investigators for the NCIA.

There were problems with each contract, and in every case Connett falsely certified each industry as a “service” industry.  This classification would not require payment of prevailing wages to inmate workers nor consultation with local labor or private competing companies. One particular partnership demonstrates how this was all done, the exploitation and greed of PRIDE – and the willingness of Connett to ignore the federal provisions.

Obviously as a member of the NCIA with his CEO, Davis, Connett was aware there was little chance of what he and PRIDE were doing being reported to the government – as all compliance inspections were performed by the NCIA.  In a contract with ATL Industries, a company out of Georgia, PRIDE was to receive bulk meats, grind the meats and add spices, flavorings, fillers and an assortment of other ingredients including breading.  Once the products were made, they were then shipped nationwide to ATL’s clients – including dozens of government agencies, departments and facilities.

Simple enough, except the manufacturing of new products and shipping of prison made goods across state lines was illegal unless performed under the PIECP with inmates receiving proper wages and product packaging properly marked as made in a prison facility.  A provision of federal law prohibits the sale of prison made goods to the US government in amounts exceeding $10,000 unless the workers making those products are paid at least the federal minimum wage – and ATL sold millions of dollars of these products to US agencies, armed forces and correctional institutions.

Not surprisingly, ATL was never informed that the PIECP required set wages or other compliance restrictions in distributing their products to the government or private customers through interstate commerce.  They were told by PRIDE that the Pie Program authorized what they were doing and PRIDE was complying with federal requirements.

Connett wrote to PRIDE’s general counsel, falsely informing that the ATL contract called for inmates to “only” grind the bulk meats, freeze and ship the unfinished products right back to ATL for further processing.  Connett had worked on the contract and knew these provisions to be false.  Upon the assurances of Connett, the attorney approved the contract and advised it would be allowed under federal laws.  Connett did not apply to the BJA for PIECP certification of this new project (PRIDE Union Foods Industry), nor did he or PRIDE even bother to advise the NCIA of this new operation.

From 2002 through most of 2007, the BJA nor anyone outside of PRIDE and the companies they made the products for, knew this food processing operation existed.  The Marine corps who received a shipment of meat with pieces of plastic mixed in didn’t know.  Schools, Kroger and Piggly Wiggly, cruise lines, hospitals and others had no idea inmates were making these products.  Workers who used to work processing foods in private industries were unaware why their jobs were being lost as were contracts to competing processing companies.

In 2005 the state Inspector General performed an audit of PRIDE and found the formation of the spin-offs violated state law.  Further they found more than $19 million dollars of PRIDE’s money had been laundered through these spin-offs and taken as salaries, perks and bonuses by PRIDE’s executive staff and members of the BOD.  They ordered the spin-offs be severed and the money recovered, but it was all gone by then.  Davis, the President, CFO and others were forced to resign, without criminal charges being brought against any of them.  Following their departure, PRIDE promised to behave and return to their mission of inmate training and job placement rather than profits.  Of course they complied – for at least a couple of months, anyway.

During the five year period between 2002 and 2007, the inmates working for PRIDE at the food processing plant were paid between .25 and .50 an hour for their labor.  They were simply assigned to that job by the prison classification team and went to work.  To them a quarter an hour beat the hell out of nothing, so they had no reason to complain.  If/when injuries occurred, the DOC was responsible for medical care and treatment paid for by the Florida taxpayers.  PRIDE made millions off this operation, as did ATL – until PRIDE decided to steal the entire operation out from under ATL in 2005.

Two other corporations were formed by a PRIDE supervisor working at the Food Processing facility, ATL was accused of owing PRIDE money and everything belonging to ATL was seized and all ATL contracts pursued by the new companies.  ATL, a private and successful company with annual sales of over $20 million was bankrupted and put entirely out of business.  Of Course, this forced take-over resulted in litigation and my attention.

In 2006 I made several trips to Florida to meet PRIDE’s BOD.  I showed them the federal mandatory requirements on wages, consultation with labor and other criteria that had not been met.  I tried to impress upon them that all the sales to the government, shipments across state lines made them accomplices to the commission of federal felonies.  They ordered an internal audit but due to the ongoing litigation, PRIDE’s president refused to discuss any aspect of the ATL or food processing operation with the board or I.  Since there was a gag order issued by the court in the case, he couldn’t be forced to inform the board of anything involving the court case.  They did however, determine that by paying minimum wage to all inmates in the program, they were in complete compliance – pointing to the NCIA reviews that corroborated compliance.

I turned all the documents I had over to the FDOC Secretary, James McDonough and he ordered an investigation by his Inspector General.  In that investigation Mr. Connett was interviewed and questioned about the ATL contract and asked to produce wage records of the inmate workers.  Connett refused to provide the wage records, informing the investigators that the ATL/PRIDE contract was not a PIECP operation.  When the Secretary of the DOC received the findings of the IG’s report in September 2007 he immediately resigned from the PRIDE board and the following month urged the Governor to abolish PRIDE altogether and return the PIECP certificate to the FDOC and allow them to operate the state’s prison industry.

By the time the Secretary received the report in September, Connett had disappeared.  No media article about why he left – resigning or terminated – he had just left following his questioning about ATL by the IG…then just as quietly he was elected to serve as VP of sales and marketing of the NCIA and chosen as the new Deputy Director of Nevada’s DOC, in charge of Industrial Programs.

Concurrent with Mr. Connett’s disappearance from PRIDE, the BJA was notified by his replacement that the Food Processing operation at Raiford, Florida was a “new” PIECP industry employing 57 inmates.  At the same time PRIDE’s Marion Box Factory, manufacturing corrugated boxes and sold to ATL for shipping of the food products began to show 20 inmates employed.  Previously the Food Processing was not listed and the Box factory showed “0” inmates employed.

This brings us back to Nevada, Connett and the prison industry operations involving using inmate labor to manufacture some of the products used in construction in Las Vegas.  He is now the President of the NCIA and thus heads the “association” responsible for ensuring Nevada’s prison industries are in full compliance with PIECP.  In those dual positions Connett is able to underpay the inmate workers, extend a “subsidy” to at least one company accessing that labor – Alpine Steel, Inc. – and in general pick up exploiting prison labor where he left off in Florida in 2007.  One could almost find it funny that he was out of a job for not more than a few weeks or months and then chosen by an NCIA member industry (Nevada) to head the entire program…and supposedly nobody vetted him and discovered his involvement with the public outcry in Florida about PRIDE.

In conclusion I would note a few things of importance:

  • In 2006 US Technologies’ stock was delisted by the SEC due to an embezzlement scam involving the UST Chairman.  20 million was stolen through a brokerage set up by the Chairman to buy UST stock.  All of the notable BOD members scattered quickly, without anyone but those reading the SEC filings of UST ever knowing they were involved in prison labor or the PIE Program.
  • Currently from the figures supplied by the NCIA in various documents, there are 1,022 prison factories or industries in operation today here in the U.S. employing in excess of 91,000 inmates supervised by industry/correctional staff numbering 6,612.  This is a huge number of jobs removed from the private sector – both in manufacturing and plant supervisory positions.
  • Other industries in Nevada, Texas and elsewhere have closed due to the hidden competition from prison industries and cheap labor.  Thomson Equipment, Inc. operated out of Silver State Industries for years.  One product made by them?  Refurbished water trucks…I know of one company that closed 5 years ago from this competition and I’m betting there are others.
  • In 2011 Congress granted FPI two new authorities in December of 2011. The first was PIE authority for FPI, which was accomplished by modifying the statute to allow FPI to participate in PIE. The second was a repatriation authority.  This means that the Federal Prison Industries (UNICOR) now has the ability and intent to allow corporations to partner with them to use federal inmates to manufacture products – just like what is now occurring in Nevada.
  • The repatriation allows FPI to perform work under a pilot program approved by FPI’s Board and the FPI has already moved forward on four pilot repatriation programs, electronics and garments, and that wages would be traditional wages (meaning non-PIECP – $.35 to $1.15 an hour).  “An NCIA Board member asked if there was a limit to the number of years FPI can repatriate and Mr. Grieser indicated there was not. Another Board member asked if FPI can partner with states on repatriation and Mr. Grieser indicated probably not.”

The U.S. companies that took American jobs offshore and received a tax break or credit for such transfers, are now going to be allowed to “repatriate” those jobs – but not for American workers, rather for American prisoners in federal custody!  This repatriation legislation when combined with UNICOR being allowed to legally provide manufacturing facilities and slave labor to American manufacturers under the PIECP, brings insourcing and outsourcing full circle.

In this era of high unemployment, our government stalls discussion or votes to pass the President’s Jobs Act to help our unemployed, while approving legislation to increase employment to America’s prisoners at slave labor wages.  The picture cannot be any clearer or frightening to workers and competing businesses without access to such cheap labor.  This ongoing attack upon American workers – both union and non-union – must be recognized and fought if America is to survive as a free democratic nation. Truly our national strength is dependent upon our manufacturing capabilities.  Our economic and financial positioning upon world markets is measured against our ability to produce goods and that takes labor.  Not free, slave or prisoner labor – but the labor of our “free workers.”  To preserve that we must fight this transitioning of jobs away from us to prison industries.

The outsourcing of oversight of a federally operated program or agency to a trade or special interest group, private corporation, organization or association is not only an open invitation to exploitation, it is dangerous.  In this case the danger is to competing small businesses and American workers suffering through unprecedented high unemployment.  I believe this is tantamount to turning the Bureau of AT&F over to the NRA to oversee compliance with state and federal gun laws – it simply does not work in either instance.

And now you know…what you do with this information will determine the future of labor and manufacturing in America.  The choice is up to We The People…