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Can you reckon our political system operates? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is secured, the bills become law. Statutes is upheld by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Arbitration Panels

Today, overseas companies, or the billionaires behind them, can sue nation states for the laws they pass, at offshore tribunals composed of business advocates. Such disputes are held away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, including companies operating from this country. Access is granted solely for businesses registered abroad.

When a secret court rules that a government measure may compromise the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation are based not on real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The administration may have to drop the legislation. It becomes hesitant to passing future laws in that area, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being brought, as companies learn from each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Democratic sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the decisions taken by elected bodies is that this provision has been inserted – absent public approval, and frequently under an atmosphere of profound opacity – into bilateral investment treaties.

A Real-World Instance: The UK Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The presiding officer found that proposals to excavate the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government then withdrew the permission the former government had granted. Now, this victory faces being overturned by an secret arbitration panel accountable to exclusively the companies bringing the case.

Last August, a corporate entity whose ultimate owners are located in the offshore financial centre initiated proceedings against the UK government. Last week a dispute settlement body in the United States was established to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have no clear indication how much this could amount to. Who is acting on its behalf challenging the state? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a international entity disputes it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him following the Russian aggression. He has started suing Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of nation's annual revenue. Included in the lawyers representing him there? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its financial support package stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Escalating Risks

We were assured that such things wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this issue labelled critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “when companies grasp the influence they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning has come to pass. Recently, oil and gas and extraction companies have filed a unprecedented number of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have to date won vast sums via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP