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What is your perceive our political system functions? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, overseas companies, or the oligarchs that control them, have the power to sue governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even companies headquartered in this country. They are open solely for entities based overseas.

If a tribunal finds that a legislative action might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, potentially billions.

This compensation represent not real financial harm but funds the arbitrators decide the company could potentially have made. The state might be compelled to drop the legislation. It will be deterred from enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of cases are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The outcome? Sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the decisions made by parliaments is that this provision has been written – absent public approval, and frequently under an atmosphere of profound opacity – into international trade agreements.

A Specific Instance: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer determined that plans to open the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine would have had no consequence on our carbon budgets. The new government later cancelled the consent the Tories had approved. Today, this victory could be compromised by an foreign court accountable to exclusively the entities petitioning it.

During August, a firm whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no idea how much this sum represents. What legal team is representing it challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary supports it, then a overseas corporation disputes it through an secretive arbitration panel, and a elected official works for its behalf.

The Russian Case

Concurrently that the court on the coalmine case was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it seems likely that he’ll use the tribunal to challenge the penalties the UK enacted against him following the Russian aggression. He has initiated proceedings against a small nation on these grounds, claiming a colossal sum: an amount representing half government’s yearly budget. Among the counsel on his side? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as collateral for its financial support package arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Threats

Politicians promised that these scenarios were not possible. Years ago, a government leader, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty upon trade deal and we have never seen a problem in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Predictions that “as corporations grasp the influence they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by general mockery.

That warning has come to pass. This year, energy and mining firms have initiated a unprecedented number of suits against nations rich and poor, contesting – like the example of the Whitehaven project – official measures to stop global warming. Companies have thus far won vast sums via ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP