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What is your understand our democratic process functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that’s how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Today, foreign corporations, or the billionaires who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises headquartered in this country. The door is open solely for entities based overseas.

When a secret court rules that a legislative action could harm the corporation’s expected profits, it may order damages of hundreds of millions, potentially billions.

These sums are based not on actual losses but compensation the panel members determine the company would perhaps have made. The state might be compelled to abandon its policy. It is deterred from passing future laws in that area, worried about facing litigation.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as companies observe each other, and private equity fund legal actions in exchange for a share of the awards. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings enacted by parliaments is that this clause has been written – without public consent, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Case: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the high court. The judge determined that proposals to dig the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have had no consequence on climate commitments. The new government subsequently revoked the licence the former government had issued. Now, this success faces being overturned by an secret arbitration panel accountable to exclusively the companies petitioning it.

During August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was set up 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 commence operations. Citizens have little idea how much this might be. Who is serving as its counsel against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government passes a law, the high court upholds it, then a international entity contests it through an undemocratic arbitration panel, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case to date, but it seems likely that he will utilise the tribunal to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, claiming $16bn: equivalent to half of state's annual revenue. Part of the lawyers on his side? a prominent lawyer, wife of the previous PM.

International law scholars believe that the EU’s delay in using frozen oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over democratic administrations could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, stated: “We’ve signed trade deal upon trade deal and there has never been a case in the past.” An expert on this matter labelled campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the strong ones” were greeted by widespread derision.

That prediction is now a reality. In the current period, energy and resource corporations have initiated a record number of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Corporations have so far won $114bn via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP