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How do you reckon our political system functions? Maybe similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, international firms, and the billionaires who own them, can sue governments for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are held behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, including businesses based in this country. They are open exclusively to entities based overseas.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums constitute not actual losses but money the arbitrators conclude the company could potentially have made. The government could be forced to rescind the measure. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of cases are being initiated, as firms learn from each other, and investment funds fund legal actions for a share of a share of the awards. The consequence? National sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and often in an atmosphere of extreme secrecy – into international trade agreements.

A Specific Example: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the high court. The justice found that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on our carbon budgets. The incoming administration subsequently revoked the consent the former government had granted. Now, this legal outcome is under threat by an offshore tribunal accountable to exclusively the entities filing the suit.

Last August, a company whose final controllers reside in the tax haven filed a lawsuit against the UK government. Recently a arbitration panel in the US capital was set up to adjudicate on it.

The claimant 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 might be. Who is serving as its counsel against the state? An elected representative, and former attorney-general in the Conservative government, the noted patriot the MP. The state makes a decision, the high court upholds it, then a foreign company disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case so far, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK imposed on him after the Russian aggression. He has already filed a claim against another European state for this reason, claiming a colossal sum: half that nation's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as security for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

Empty Promises and Mounting Threats

The public was told that such things wouldn’t happen. Years ago, a government leader, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” A consultant on this topic labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “when companies begin to understand the influence they now possess, they will turn their attention from the weak nations to the developed economies” were met with scepticism.

That prediction has come to pass. In the current period, fossil fuel and resource corporations have filed a record number of suits against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained the majority. That equates to the combined GDP