It is a little simplified, but yes the swedish penal system works like that in a nutshell. There are some maximum security prisons however, but very few prisoners are kept there on a permanent basis (think 23h lockdown 7 days a week).

Basically only people who are deemed sane, but impossible to reintroduce into society are in those bunkers. As well as people who just are too dangerous to keep in a general population of prisoners.