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How do you reckon our political system works? Perhaps something like this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Offshore Courts

Nowadays, international firms, or the billionaires that control them, can sue nation states for the regulations they pass, at private courts staffed by corporate lawyers. Such disputes take place away from public scrutiny. Differing from national judiciaries, these tribunals allow no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises based in this country. The door is open solely for businesses based overseas.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, even billions.

This compensation constitute not real financial harm but funds the tribunal officials determine the company might otherwise have made. The government might be compelled to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of being sued.

A Process Growing Exponentially

Record numbers of disputes are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a portion of the settlements. The consequence? Sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the choices enacted by parliaments is that this provision has been incorporated – absent public approval, and typically amid conditions of total confidentiality – within international trade agreements.

A Real-World Case: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that plans to dig the first new deep coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The Labour government subsequently revoked the licence the previous administration had granted. Now, this success is under threat by an secret arbitration panel reporting to no one but the corporations petitioning it.

Last August, a company whose beneficial owners reside in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the United States was established to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had received permission to go ahead. We have little idea how much this could amount to. What legal team is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the high court validates it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know scarce of the case to date, but it seems likely that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against a small nation for this reason, demanding sixteen billion dollars: half that state's yearly income. Included in the lawyers representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s delay in using frozen oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Mounting Risks

The public was told that such things could not occur. Previously, a former prime minister, championing the largest and riskiest of all these agreements, told us: “Britain has agreed to trade agreement upon trade deal and there has never been a problem in the past.” An adviser on this topic accused campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations needed to fear these lawsuits. Warnings that “once firms start to realise the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with scepticism.

That prediction has now materialised. Recently, fossil fuel and resource corporations have initiated a unprecedented number of cases against nations rich and poor, challenging – like the example of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured the majority. That equates to the combined GDP