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What is your reckon our democratic process works? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is upheld by the courts. End of story. However, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, or the oligarchs that control them, can sue nation states for the policies they pass, at offshore tribunals made up of business advocates. The cases take place away from public scrutiny. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. The general public are unable to file a case to them, just as our government, or even businesses operating from this country. Access is granted exclusively to entities based overseas.

If a tribunal determines that a legislative action might diminish the corporation’s projected profits, it has the power to grant compensation of vast sums, potentially billions.

This compensation represent not actual losses but funds the tribunal officials decide the company might otherwise have made. The administration may have to abandon its policy. It becomes deterred from introducing similar legislation of a similar nature, for fear of facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The consequence? Sovereignty and popular rule are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices taken by parliaments is that this stipulation has been written – absent public approval, and often in conditions of profound opacity – within international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

Last year, activists achieved a major legal triumph at the high court. The justice determined that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the Tories had approved. Now, this success could be compromised by an offshore tribunal reporting to no one but the corporations filing the suit.

In August, a corporate entity whose final controllers are located in the offshore financial centre initiated proceedings against the UK government. The previous week a tribunal in the US capital was established to hear it.

This firm is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. Who is representing it in opposition to the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration enacts a policy, the high court validates it, then a foreign company disputes it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the penalties the UK imposed on him after the Russian aggression. He has previously filed a claim against another European state with similar intent, seeking a colossal sum: half that state's annual revenue. Included in the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, championing the biggest and most dangerous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this matter labelled critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear such legal actions. Predictions that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” 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 claims against nations rich and poor, contesting – like the example of the Whitehaven project – official measures to stop global warming. Corporations have thus far won vast sums through ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP