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Can you perceive our system of government functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that was how it used to work. Those days are over.

The Rise of Offshore Tribunals

Nowadays, foreign corporations, along with the oligarchs who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are conducted behind closed doors. Differing from national judiciaries, these bodies grant no right of appeal or legal review. The general public cannot take a case to them, just as our government, or even companies based in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s projected profits, it may order damages of vast sums, potentially billions.

These awards constitute not real financial harm but compensation the tribunal officials determine the company would perhaps have made. The state could be forced to abandon its policy. It becomes deterred from passing future laws along the same lines, for fear of being sued.

A System Growing Exponentially

Record numbers of disputes are being brought, as companies take cues from each other, and investment funds finance suits for a share of a share of the awards. The result? National sovereignty and democracy are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the choices made by legislatures is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of profound opacity – into international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, activists secured a significant win at the high court. The judge ruled that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the permission the Tories had issued. Currently, this victory faces being overturned by an secret arbitration panel accountable to no one but the entities bringing the case.

Last August, a company whose final controllers are located in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was convened to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been allowed to go ahead. We have little idea how much this might be. Which individual is serving as its counsel challenging the British government? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation contests it through an secretive private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coal mine dispute was established, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it appears probable that he may employ the tribunal to fight the sanctions the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s annual revenue. Part of the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

International law scholars contend that the EU’s delay in using frozen state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

We were assured that such things wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all such treaties, stated: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this matter labelled campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by widespread derision.

That warning has now materialised. This year, energy and mining firms have lodged a record number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP