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Can you reckon our democratic process works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

In the modern era, international firms, along with the billionaires who own them, can sue governments for the laws they pass, at offshore tribunals made up of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these panels provide no avenue for appeal or judicial review. You or I are barred from bringing a case to them, just as our government, including businesses based in this country. They are open solely for businesses registered abroad.

If a tribunal determines that a legislative action may compromise the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

This compensation are based not on real financial harm but money the arbitrators decide the company might otherwise have made. The administration might be compelled to drop the legislation. It is discouraged from introducing similar legislation in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being filed, as companies learn from each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the decisions taken by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under an atmosphere of total confidentiality – within international trade agreements.

A Concrete Case: The UK Coal Mine

A year ago, a conservation group won a great victory at the High Court. The judge ruled that plans to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have had no impact on national carbon targets. The new government later cancelled the permission the former government had approved. Currently, this legal outcome faces being overturned by an foreign court accountable to only the entities bringing the case.

During August, a corporate entity whose ultimate owners are located in the tax haven lodged a claim against the UK government. Last week a tribunal in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the profits it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. What legal team is serving as its counsel challenging the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case at present, but it appears probable that he will utilise the arbitration process to contest the restrictions the UK enacted against him following the war in Ukraine. He has started suing Luxembourg for this reason, demanding sixteen billion dollars: an amount representing half government’s yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts contend that the EU’s delay in utilising seized Russian assets as guarantee for its financial support package stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Empty Promises and Mounting Risks

We were assured that such things wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An expert on this matter described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “as corporations grasp the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. In the current period, energy and resource corporations have lodged a unprecedented number of cases against nations rich and poor, opposing – as in the case of the UK mine – official measures to prevent global warming. Companies have thus far won vast sums through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP