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Can you understand our political system works? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that was how it once functioned. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals that control them, are able to litigate against nation states for the regulations they pass, at offshore tribunals composed of business advocates. The cases are held behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies operating from this country. They are open only to entities registered abroad.

When a secret court determines that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

This compensation constitute not actual losses but compensation the panel members determine the company might otherwise have made. The state may have to rescind the measure. It is discouraged from passing future laws in that area, for fear of being sued.

A Mechanism Running Rampant

Record numbers of legal actions are being filed, as firms learn from each other, and hedge funds finance suits in return for a share of the settlements. The outcome? National sovereignty and popular rule are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the decisions made by elected bodies is that this provision has been written – without public consent, and typically amid conditions of extreme secrecy – within trade treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have had no consequence on our carbon budgets. The Labour government then withdrew the consent the Tories had approved. Now, this victory faces being overturned by an foreign court answering to exclusively the corporations filing the suit.

Last August, a company whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in the US capital was set up to consider the case.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to go ahead. We have no idea how much this could amount to. Who is serving as its counsel challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a foreign company disputes it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows scarce of the case at present, but it appears probable that he’ll use the arbitration process to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously filed a claim against another European state with similar intent, demanding a colossal sum: an amount representing half government’s annual revenue. Part of the legal team acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars argue that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Risks

Politicians promised that these events were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement upon trade deal and there has never been a problem in the past.” A consultant on this issue labelled activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies start to realise the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That warning has now materialised. Recently, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to stop climate breakdown. Companies have thus far won vast sums via ISDS, of which energy giants have secured the majority. That equates to the combined GDP