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How do you reckon our democratic process works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that was how it operated in the past. No longer.

The Rise of Offshore Courts

In the modern era, foreign corporations, along with the wealthy individuals behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels made up of business advocates. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. They are open solely for businesses operating from foreign soil.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it can award compensation of vast sums, running into billions.

This compensation constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The administration could be forced to rescind the measure. It is deterred from enacting future policies of a similar nature, worried about being sued.

A System Growing Exponentially

Unprecedented levels of disputes are being initiated, as companies learn from each other, and investment funds fund legal actions in return for a portion of the awards. The outcome? National sovereignty and democracy are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the decisions taken by legislatures is that this clause has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – inside trade treaties.

A Specific Instance: The Cumbrian Coal Mine

Last year, activists secured a significant win at the high court. The justice ruled that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The new government later cancelled the consent the Tories had granted. Currently, this success is under threat by an secret arbitration panel reporting to only the companies filing the suit.

In August, a company whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. The public has no idea how much this might be. What legal team is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him following the Russian aggression. He has previously started suing another European state on these grounds, claiming sixteen billion dollars: half that government’s yearly income. Among the lawyers on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its financial support package arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that such things could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, declared: “The UK has signed trade deal upon trade deal and we have never seen a issue in the past.” An expert on this issue described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies start to realise the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with scepticism.

That threat has come to pass. In the current period, energy and mining firms have lodged a unprecedented number of claims against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to prevent global warming. Companies have to date won $114bn by using ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP