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What is your perceive our political system functions? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Rise of Offshore Courts

Nowadays, foreign corporations, and the wealthy individuals who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises based in this country. They are open exclusively to corporations registered abroad.

If a tribunal finds that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not tangible damages but funds the arbitrators determine the company could potentially have made. The state may have to abandon its policy. It will be discouraged from passing future laws along the same lines, worried about being sued.

A Process Running Rampant

Record numbers of legal actions are being initiated, as companies observe each other, and private equity bankroll lawsuits in exchange for a cut of the settlements. The result? Sovereignty and democracy are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices made by elected bodies is that this clause has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – into trade treaties.

A Concrete Case: The UK Coalmine

A year ago, activists secured a significant win at the high court. The justice found that schemes to excavate the first deep coalmine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration then withdrew the licence the Tories had approved. Now, this victory faces being overturned by an secret arbitration panel reporting to only the entities petitioning it.

In August, a firm whose ultimate owners are located in the tax haven lodged a claim versus the UK government. Recently a dispute settlement body in Washington DC was convened to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had received permission to go ahead. The public has no clear indication how much this might be. What legal team is acting on its behalf challenging the UK administration? An elected representative, and former attorney-general in the outgoing administration, the noted patriot the MP. The state makes a decision, the high court validates it, then a overseas corporation contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case at present, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK enacted against him following the Russian aggression. He has already initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half state's annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in utilising seized Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that these events were not possible. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” A consultant on this issue accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries needed to fear ISDS claims. Predictions that “as corporations start to realise the authority they now possess, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That threat is now a reality. This year, oil and gas and resource corporations have initiated a record number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP