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How do you reckon our democratic process operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. However, that used to be how it operated in the past. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, or the billionaires that control them, can sue elected administrations for the policies they pass, at offshore tribunals made up of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, including enterprises headquartered in this country. The door is open solely for corporations registered abroad.

When a secret court rules that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of vast sums, running into billions.

This compensation represent not actual losses but funds the arbitrators conclude the company might otherwise have made. The state may have to rescind the measure. It will be deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as firms learn from each other, and private equity finance suits in return for a cut of the takings. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the rulings taken by parliaments is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of total confidentiality – within international trade agreements.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice determined that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration then withdrew the licence the former government had issued. Currently, this victory could be compromised by an offshore tribunal accountable to only the corporations filing the suit.

Last August, a firm whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was set up to hear it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to proceed. The public has little idea how much this could amount to. Who is representing it against the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state passes a law, the domestic court supports it, then a international entity contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the restrictions the UK levied against him following the invasion of Ukraine. He has filed a claim against a small nation on these grounds, seeking sixteen billion dollars: equivalent to half of nation's yearly budget. Among the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the finance Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that such things were not possible. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” An adviser on this issue labelled campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations grasp the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were met with widespread derision.

That warning has come to pass. Recently, fossil fuel and resource corporations have filed a unprecedented number of suits against nations rich and poor, challenging – like the example of the UK mine – state efforts to prevent global warming. Firms have to date won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP