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How do you understand our democratic process operates? It could be similar to this. We elect MPs. They legislate on bills. When a majority is achieved, the bills become law. The law is maintained by the courts. End of story. Well, that’s how it used to work. No longer.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, or the billionaires who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, including businesses headquartered in this country. The door is open solely for corporations registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it may order damages of hundreds of millions, even billions.

These sums constitute not real financial harm but compensation the arbitrators decide the company might otherwise have made. The state may have to abandon its policy. It is discouraged from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as firms observe each other, and investment funds bankroll lawsuits in return for a portion of the awards. The consequence? National sovereignty and democracy are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the decisions enacted by elected bodies is that this provision has been written – without public consent, and typically amid an atmosphere of total confidentiality – inside trade treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that plans to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have had no impact on climate commitments. The new government later cancelled the consent the Tories had issued. Now, this success could be compromised by an offshore tribunal reporting to no one but the entities petitioning it.

During August, a company whose final controllers are based in the offshore financial centre filed a lawsuit versus the UK government. Last week a dispute settlement body in the United States was established to adjudicate on it.

The company is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. We have little idea how much this sum represents. Who is representing it in opposition to the state? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Among the counsel on his side? Cherie Blair, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in utilising seized Russian assets as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Threats

Politicians promised that these scenarios could not occur. In 2014, a senior politician, promoting the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this topic labelled critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms begin to understand the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That threat is now a reality. In the current period, oil and gas and extraction companies have initiated a record number of cases against nations across the economic spectrum, opposing – as in the case of the UK mine – official measures to stop global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That represents the combined GDP