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How do you understand our democratic process functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that used to be how it used to work. Not anymore.

The Rise of Shadow Tribunals

Nowadays, overseas companies, along with the oligarchs that control them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels made up of business advocates. These proceedings take place in secret. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, including companies operating from this country. The door is open solely for businesses operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but money the panel members decide the company could potentially have made. The state could be forced to abandon its policy. It is discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being initiated, as firms learn from each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The result? Sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the rulings made by elected bodies is that this clause has been incorporated – absent public approval, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The UK Coalmine

Last year, a conservation group secured a significant win at the high court. The presiding officer determined that plans to open the first major coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The incoming administration later cancelled the consent the previous administration had issued. Now, this legal outcome is under threat by an foreign court reporting to exclusively the entities bringing the case.

In August, a firm whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in the US capital was set up to consider the case.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. What legal team is representing it challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the national judiciary upholds it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case at present, but it is highly possible that he will utilise the arbitration process to fight the sanctions the UK enacted against him subsequent to the Russian aggression. He has initiated proceedings against a small nation with similar intent, claiming $16bn: equivalent to half of state's yearly income. Part of the legal team acting for him in that case? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s delay in using frozen oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

False Assurances and Mounting Threats

The public was told that such things wouldn’t happen. Previously, a former prime minister, promoting the most significant and hazardous of all such treaties, told us: “We’ve signed investment treaty upon trade deal and there has never been a problem in the past.” An adviser on this topic labelled activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the strong ones” were met with general mockery.

That prediction is now a reality. In the current period, oil and gas and resource corporations have initiated a record number of cases against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Corporations have thus far won vast sums via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP