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What is your understand 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. That's it. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Tribunals

Today, foreign corporations, along with the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these bodies provide no right of appeal or legal review. You or I cannot take a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to entities registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, even billions.

This compensation constitute not real financial harm but money the arbitrators conclude the company could potentially have made. The state could be forced to drop the legislation. It will be deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and investment funds bankroll lawsuits in return for a share of the takings. The outcome? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions enacted by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – into international trade agreements.

A Real-World Case: The Cumbrian Coal Mine

Last year, activists secured a significant win at the high court. The justice determined that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the consent the former government had approved. Now, this legal outcome is under threat by an secret arbitration panel accountable to only the corporations petitioning it.

During August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings challenging the UK government. The previous week a tribunal in the United States was set up to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no idea how much this sum represents. Who is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court supports it, then a international entity contests it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the panel on the coalmine case was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg for this reason, demanding sixteen billion dollars: an amount representing half state's annual revenue. Included in the legal team representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s delay in using frozen state funds as security for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states might be preventing the funds Ukraine critically depends on.

Empty Promises and Escalating Costs

Politicians promised that such things were not possible. Years ago, a senior politician, championing the largest and riskiest of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” A consultant on this topic accused critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction is now a reality. Recently, fossil fuel and mining firms have filed a record number of suits against nations across the economic spectrum, challenging – similar to the UK mine – government attempts to prevent environmental catastrophe. Firms have to date won vast sums via ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP