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Can you perceive our democratic process functions? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. However, that was how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, overseas companies, and the billionaires behind them, have the power to sue nation states for the policies they pass, at private courts made up of commercial attorneys. The cases are held in secret. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, including companies based in this country. Access is granted solely for businesses registered abroad.

Should an arbitration panel rules that a legislative action could harm the corporation’s projected profits, it may order compensation of vast sums, potentially billions.

These awards constitute not real financial harm but money the tribunal officials decide the company could potentially have made. The administration could be forced to drop the legislation. It is hesitant to passing future laws along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Historically high figures of cases are being initiated, as firms observe each other, and hedge funds finance suits for a share of a share of the awards. The result? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices taken by elected bodies is that this clause has been written – absent public approval, and frequently under an atmosphere of total confidentiality – within trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, environmental campaigners won a great victory at the high court. The presiding officer found that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government later cancelled the permission the previous administration had granted. Currently, this success faces being overturned by an foreign court answering to no one but the entities petitioning it.

During August, a firm whose final controllers are based in the tax haven lodged a claim against the UK government. The previous week a arbitration panel in the US capital was convened to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. Who is acting on its behalf against the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The state passes a law, the national judiciary supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case at present, but it appears probable that he’ll use the tribunal to fight the restrictions the UK enacted against him subsequent to the Russian aggression. He has already filed a claim against Luxembourg with similar intent, seeking $16bn: equivalent to half of state's yearly income. Among the lawyers acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in using frozen state funds as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that such things could not occur. In 2014, a senior politician, championing the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and we have never seen a problem in the past.” An expert on this issue accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “once firms begin to understand the influence they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were met with widespread derision.

That warning has come to pass. In the current period, energy and mining firms have initiated a record number of suits against nations across the economic spectrum, opposing – like the example of the UK mine – government attempts to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That represents the combined GDP