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Can you reckon our political system works? It could be something like this. We elect MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law is maintained by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Advent of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are conducted in secret. In contrast to domestic courts, these panels allow no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies operating from this country. The door is open only to entities registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s expected profits, it can award financial penalties of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the arbitrators conclude the company could potentially have made. The state could be forced to drop the legislation. It is deterred from passing future laws in that area, worried about facing litigation.

A Process Growing Exponentially

Record numbers of legal actions are being initiated, as corporations observe each other, and private equity bankroll lawsuits in return for a share of the awards. The consequence? Sovereignty and democratic governance are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices taken by elected bodies is that this stipulation has been written – absent public approval, and often in a climate of total confidentiality – into trade treaties.

A Specific Example: The UK Coal Mine

Twelve months ago, activists won a great victory at the high court. The presiding officer found that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the former government had issued. Today, this victory could be compromised by an foreign court reporting to only the companies filing the suit.

In August, a firm whose beneficial owners are based in the tax haven lodged a claim against the UK government. Last week a tribunal in the United States was set up to consider the case.

The company is seeking compensation from the UK for the profits it might have made if the mine had received permission to commence operations. Citizens have no idea how much this sum represents. Which individual is acting on its behalf against the British government? A member of parliament, and ex-law officer in the Conservative government, that great patriot the MP. The government enacts a policy, the national judiciary upholds it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, claiming $16bn: an amount representing half nation's annual revenue. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that such things were not possible. Previously, a senior politician, promoting the largest and riskiest of all these agreements, stated: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue accused campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That prediction has come to pass. Recently, energy and mining firms have filed a historic level of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – state efforts to halt global warming. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP