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What is your understand our democratic process functions? Perhaps something like this. We elect MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation is upheld by the courts. That's it. However, that was how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

Today, international firms, and the oligarchs that control them, are able to litigate against nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings are conducted 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, just as our government, including companies operating from this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation represent not real financial harm but funds the arbitrators conclude the company would perhaps have made. The state may have to drop the legislation. It becomes hesitant to introducing similar legislation in that area, worried about facing litigation.

A Process Growing Exponentially

Record numbers of legal actions are being filed, as companies take cues from each other, and investment funds finance suits in exchange for a portion of the awards. The consequence? Sovereignty and democracy are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the choices taken by elected bodies is that this stipulation has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – inside international trade agreements.

A Specific Example: The Cumbrian Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that proposals to open the first deep coalmine in the UK for a generation, in northwest England, had been illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government later cancelled the licence the former government had granted. Today, this success is under threat by an offshore tribunal answering to no one but the corporations petitioning it.

Last August, a firm whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was convened to hear it.

The company is seeking compensation from the UK for the money it could have earned if the mine had received permission to proceed. We have no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a international entity contests it through an undemocratic arbitration panel, and a elected official acts on its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it appears probable that he may employ the tribunal to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking a colossal sum: equivalent to half of nation's yearly budget. Among the lawyers on his side? Cherie Blair, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in using frozen state funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Risks

Politicians promised that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the most significant and hazardous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this issue described activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Predictions that “once firms begin to understand the power bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were greeted by scepticism.

That threat has now materialised. Recently, fossil fuel and resource corporations have lodged a historic level of cases against nations across the economic spectrum, challenging – similar to the UK mine – official measures to prevent environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP