1. said entrepreneur is likely to be from a similar background, eg having served in the same agency, and thus being exposed to the same culture, and from this might very well be a bit desensitized to human rights abuses.
2. a cheaper, but also more ethical, solution isn't necessarily available. An organization with fewer morals has more tools available to it, such as nonempty death threats, which ultimately lower costs. A cheaper solution has to cut somewhere else to compete.
3. sometimes an organization cannot completely keep tabs on employees, especially an intelligence organization.
Simply put, this is the wishful thinking wherein the thinker believes that the private sector will correct for any nastiness and then creates a fantasy to support this belief in the specific case being discussed.
Merely having a bunch of money in way qualifies you to bid for a large military contract.
Most if not absolutely all of the staff of private military contracting firms are ex-military of some sort. So you basically start out, for good or ill, with the ethos of the military and the baggage of the military. The only question is what kind of supervision will you give to more-or-less-the-same-guys. That's it. So the whole privatization theory is essentially a "let's do it faster with less supervision" equation. There's no way human rights enters into that equation.