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How do you perceive our political system works? Maybe something like this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that was how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals that control them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, or even businesses headquartered in this country. They are open only to entities registered abroad.

When a secret court determines that a government measure might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These awards represent not actual losses but funds the panel members conclude the company would perhaps have made. The administration might be compelled to drop the legislation. It becomes discouraged from enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of cases are being brought, as corporations take cues from each other, and hedge funds finance suits for a share of a portion of the awards. The outcome? Sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede domestic law and the decisions enacted by parliaments is that this provision has been inserted – absent public approval, and typically amid an atmosphere of extreme secrecy – into trade treaties.

A Concrete Example: The UK Coalmine

A year ago, a conservation group won a great victory at the senior court. The judge determined that plans to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the licence the former government had issued. Now, this victory could be compromised by an foreign court accountable to no one but the companies bringing the case.

Last August, a firm whose ultimate owners are based in the tax haven filed a lawsuit against the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the British government? An elected representative, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the court on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the penalties the UK levied against him after the invasion of Ukraine. He has already started suing Luxembourg for this reason, seeking a colossal sum: an amount representing half government’s annual revenue. Among the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

The public was told that these scenarios could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” An expert on this issue described activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “once firms grasp the influence they now possess, they will turn their attention from the poorer states to the developed economies” were met with widespread derision.

That threat has come to pass. Recently, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – official measures to stop environmental catastrophe. Corporations have to date won vast sums through ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP