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What is your understand our democratic process functions? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. End of story. Well, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, or the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are held in secret. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, including businesses operating from this country. They are open solely for businesses based overseas.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but money the tribunal officials decide the company might otherwise have made. The state might be compelled to drop the legislation. It is discouraged from passing future laws along the same lines, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of disputes are being filed, as corporations observe each other, and private equity bankroll lawsuits in exchange for a cut of the takings. The outcome? Democratic sovereignty and popular rule are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the choices enacted by legislatures is that this provision has been written – absent public approval, and typically amid conditions of extreme secrecy – within trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the high court. The judge determined that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine could have zero effect on our carbon budgets. The incoming administration then withdrew the licence the previous administration had issued. Now, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the companies petitioning it.

In August, a firm whose final controllers are located in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

The claimant is suing the UK for the money it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this might be. Which individual is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coalmine case was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it appears probable that he may employ the arbitration process to challenge the sanctions the UK enacted against him after the Russian aggression. He has started suing Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Among the lawyers on his side? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s procrastination in using frozen state funds as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement after trade deal and there has not been a problem in the past.” An adviser on this topic described critics of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “when companies grasp the power bestowed upon them, they will shift their focus from the poorer states to the strong ones” were greeted by widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have lodged a historic level of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – state efforts to stop global warming. Corporations have so far won vast sums through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP