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What is your perceive our political system functions? It could be similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, along with the oligarchs who own them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes take place in secret. Differing from national judiciaries, these bodies provide no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. They are open solely for businesses operating from foreign soil.

If a tribunal determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, even billions.

These awards constitute not actual losses but compensation the panel members decide the company might otherwise have made. The government could be forced to drop the legislation. It becomes hesitant to enacting future policies along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as corporations learn from each other, and private equity fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the rulings made by elected bodies is that this stipulation has been inserted – absent public approval, and often in conditions of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The justice found that schemes to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration then withdrew the licence the Tories had issued. Currently, this success could be compromised by an secret arbitration panel reporting to only the corporations filing the suit.

In August, a corporate entity whose final controllers are based in the tax haven initiated proceedings versus the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to proceed. Citizens have little idea how much this might be. What legal team is representing it challenging the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The state makes a decision, the high court upholds it, then a international entity disputes it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the panel on the mining lawsuit was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case so far, but it is highly possible that he’ll use the ISDS mechanism to challenge the restrictions the UK imposed on him subsequent to the Russian aggression. He has started suing Luxembourg with similar intent, claiming $16bn: an amount representing half nation's yearly budget. Included in the counsel representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists contend that the EU’s procrastination in using frozen state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Threats

We were assured that such things wouldn’t happen. Years ago, a government leader, championing the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” An expert on this issue accused activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “once firms grasp the influence they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That warning has come to pass. This year, energy and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to prevent environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That represents the combined GDP