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How do you understand our political system works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Legislation is maintained by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Emergence of Offshore Tribunals

Nowadays, foreign corporations, or the wealthy individuals behind them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies allow no opportunity to appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open exclusively to entities based overseas.

When a secret court determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation are based not on real financial harm but funds the arbitrators conclude the company could potentially have made. The state might be compelled to drop the legislation. It becomes hesitant to passing future laws in that area, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as corporations learn from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the rulings taken by elected bodies is that this stipulation has been written – without public consent, and frequently under a climate of extreme secrecy – within international trade agreements.

A Real-World Example: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government later cancelled the consent the previous administration had granted. Today, this legal outcome faces being overturned by an foreign court answering to exclusively the corporations filing the suit.

Last August, a company whose final controllers reside in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in the United States was convened to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. Who is representing it challenging the state? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the high court upholds it, then a overseas corporation contests it through an secretive private court, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case so far, but it appears probable that he’ll use the tribunal to fight the sanctions the UK levied against him after the Russian aggression. He has already initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the legal team acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in utilising seized Russian assets as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Escalating Risks

The public was told that such things were not possible. In 2014, a senior politician, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An expert on this topic accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Predictions that “once firms grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.

That threat has come to pass. Recently, fossil fuel and mining firms have initiated a record number of cases against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Corporations have so far won $114bn through ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP