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How do you perceive our system of government functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. Statutes is maintained by the courts. Simple as that. Yet, that used to be how it once functioned. Those days are over.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, along with the oligarchs behind them, have the power to sue governments for the laws they pass, at secret arbitration panels made up of business advocates. These proceedings are held in secret. In contrast to domestic courts, these tribunals allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies operating from this country. They are open solely for businesses registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, even billions.

These sums are based not on tangible damages but compensation the panel members determine the company would perhaps have made. The state may have to rescind the measure. It becomes hesitant to passing future laws along the same lines, worried about facing litigation.

A Process Growing Exponentially

Historically high figures of cases are being filed, as firms observe each other, and private equity fund legal actions in return for a share of the settlements. The result? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions enacted by legislatures is that this clause has been written – absent public approval, and frequently under a climate of total confidentiality – into trade treaties.

A Real-World Instance: The UK Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The incoming administration later cancelled the licence the previous administration had granted. Currently, this victory faces being overturned by an offshore tribunal reporting to no one but the entities filing the suit.

During August, a firm whose ultimate owners reside in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

The company is litigating against the UK for the revenue it could have earned if the mine had received permission to go ahead. We have no idea how much this sum represents. What legal team is serving as its counsel against the British government? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the domestic court upholds it, then a foreign company disputes it through an undemocratic private court, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him after the Russian aggression. He has already started suing Luxembourg on these grounds, seeking $16bn: an amount representing half government’s yearly income. Included in the lawyers on his side? Cherie Blair, wife of the previous PM.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that these scenarios wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic labelled activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that solely developing countries had to worry about these lawsuits. Predictions that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning has come to pass. In the current period, oil and gas and resource corporations have filed a historic level of cases against nations both wealthy and developing, contesting – similar to the UK mine – official measures to prevent environmental catastrophe. Corporations have so far won vast sums via ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP