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How do you understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, or the oligarchs behind them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. The cases are held behind closed doors. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. The door is open solely for entities based overseas.

If a tribunal finds that a law or policy might diminish the corporation’s anticipated profits, it may order compensation of vast sums, potentially billions.

These sums constitute not actual losses but compensation the tribunal officials determine the company would perhaps have made. The administration might be compelled to rescind the measure. It will be deterred from introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as companies observe each other, and private equity fund legal actions in exchange for a share of the settlements. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices taken by elected bodies is that this clause has been written – without public consent, and frequently under conditions of profound opacity – within international trade agreements.

A Specific Instance: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The judge determined that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on our carbon budgets. The new government then withdrew the consent the previous administration had granted. Now, this success faces being overturned by an foreign court accountable to only the entities filing the suit.

During August, a company whose beneficial owners are located in the tax haven lodged a claim challenging the UK government. Recently a arbitration panel in Washington DC was established to hear it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this might be. Which individual is acting on its behalf challenging the British government? An elected representative, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The administration enacts a policy, the national judiciary upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Challenge

On the same day that the tribunal on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows little of the case so far, but it is highly possible that he’ll use the ISDS mechanism to contest the sanctions the UK enacted against him after the Russian aggression. He has already started suing a small nation on these grounds, seeking a colossal sum: an amount representing half nation's yearly income. Among the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that these events could not occur. Years ago, a senior politician, championing the largest and riskiest of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this topic described critics of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about such legal actions. Warnings that “when companies begin to understand the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning is now a reality. Recently, energy and extraction companies have lodged a historic level of claims against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP