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Can you perceive our democratic process functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that used to be how it used to work. No longer.

The Rise of Offshore Courts

In the modern era, foreign corporations, and the billionaires who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held in secret. Differing from national judiciaries, these tribunals allow no right of appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even businesses based in this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal rules that a law or policy may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, even billions.

These sums represent not real financial harm but compensation the arbitrators decide the company might otherwise have made. The state could be forced to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Process Growing Exponentially

Historically high figures of disputes are being filed, as firms learn from each other, and hedge funds fund legal actions in return for a share of the settlements. The outcome? Sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings made by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have zero effect on our carbon budgets. The incoming administration then withdrew the licence the Tories had granted. Now, this victory is under threat by an offshore tribunal accountable to exclusively the corporations petitioning it.

In August, a corporate entity whose final controllers are located in the offshore financial centre initiated proceedings against the UK government. Last week a tribunal in Washington DC was convened to consider the case.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been permitted to proceed. We have no idea how much this could amount to. Who is representing it challenging the British government? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The government enacts a policy, the high court validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he will utilise the tribunal to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, claiming $16bn: equivalent to half of state's annual revenue. Included in the counsel on his side? Cherie Blair, married to the former British prime minister.

Trade specialists believe that the EU’s delay in using frozen state funds as security for its financial support package is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these scenarios were not possible. Previously, a government leader, promoting the most significant and hazardous of all such treaties, told us: “Britain has agreed to trade agreement upon trade deal and we have never seen a problem in the past.” An adviser on this issue accused activists of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies start to realise the power they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That threat is now a reality. In the current period, fossil fuel and extraction companies have initiated a historic level of cases against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – official measures to halt global warming. Companies have thus far won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP