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What is your understand our system of government works? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Rise of Offshore Tribunals

Nowadays, foreign corporations, or the wealthy individuals who own them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these tribunals grant no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including businesses based in this country. They are open only to entities registered abroad.

Should an arbitration panel 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 sums represent not real financial harm but money the arbitrators determine the company might otherwise have made. The government might be compelled to drop the legislation. It is discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as corporations learn from each other, and hedge funds finance suits in exchange for a share of the settlements. The consequence? National sovereignty and democratic governance are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings made by parliaments is that this provision has been inserted – absent public approval, and typically amid conditions of extreme secrecy – within international trade agreements.

A Concrete Example: The UK Coal Mine

Last year, activists achieved a major legal triumph at the High Court. The judge determined that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on climate commitments. The Labour government then withdrew the permission the Tories had granted. Today, this success is under threat by an foreign court accountable to exclusively the entities bringing the case.

During August, a company whose ultimate owners reside in the offshore financial centre filed a lawsuit versus the UK government. The previous week a arbitration panel in the US capital was established to hear it.

The company is suing the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this could amount to. Which individual is representing it challenging the state? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a foreign company disputes it through an unaccountable offshore tribunal, and a elected official represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it seems likely that he’ll use the tribunal to fight the restrictions the UK imposed on him after the Russian aggression. He has filed a claim against a small nation on these grounds, demanding sixteen billion dollars: an amount representing half state's yearly budget. Among the legal team representing him there? a prominent lawyer, wife of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these events could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” An adviser on this matter accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has now materialised. This year, energy and resource corporations have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to prevent global warming. Corporations have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP