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How do you reckon our political system functions? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes is upheld by the courts. That's it. Yet, that used to be how it used to work. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, or the billionaires behind them, can sue nation states for the regulations they pass, at offshore tribunals composed of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these panels provide no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, including enterprises headquartered in this country. Access is granted only to corporations registered abroad.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These sums constitute not tangible damages but funds the panel members determine the company might otherwise have made. The state may have to rescind the measure. It is deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Running Rampant

Record numbers of disputes are being initiated, as corporations observe each other, and investment funds fund legal actions in exchange for a portion of the awards. The outcome? National sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions enacted by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Concrete Example: The UK Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine could have no consequence on our carbon budgets. The incoming administration later cancelled the permission the previous administration had issued. Now, this success faces being overturned by an foreign court accountable to exclusively the entities petitioning it.

Last August, a corporate entity whose ultimate owners are located in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. The public has no clear indication how much this might be. Which individual is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has initiated proceedings against a small nation for this reason, claiming $16bn: equivalent to half of government’s yearly income. Among the counsel acting for him in that case? a prominent lawyer, wife of the previous PM.

Trade specialists believe that the EU’s procrastination in using frozen oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

Politicians promised that these events could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this issue labelled activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms start to realise the power they now possess, they will redirect their efforts from the weak nations to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP