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How do you understand our political system functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Rise of Shadow Courts

In the modern era, overseas companies, and the oligarchs behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings take place away from public scrutiny. In contrast to domestic courts, these tribunals allow no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, including businesses headquartered in this country. They are open exclusively to businesses registered abroad.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant damages of vast sums, even billions.

This compensation represent not actual losses but compensation the panel members decide the company could potentially have made. The administration may have to rescind the measure. It is deterred from passing future laws of a similar nature, worried about being sued.

A Process Spiralling Out of Control

Record numbers of cases are being initiated, as firms observe each other, and private equity finance suits for a share of a cut of the takings. The result? Sovereignty and democracy are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings taken by parliaments is that this stipulation has been written – absent public approval, and frequently under conditions of total confidentiality – into trade treaties.

A Concrete Example: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The justice ruled that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The Labour government later cancelled the permission the former government had issued. Currently, this success is under threat by an offshore tribunal answering to no one but the companies bringing the case.

Last August, a firm whose beneficial owners are located in the Cayman Islands lodged a claim versus the UK government. Recently a dispute settlement body in the United States was established to adjudicate on it.

The company is litigating against the UK for the profits it might have made if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The government passes a law, the high court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Part of the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An adviser on this topic described critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “as corporations grasp the power they now possess, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That warning is now a reality. Recently, energy and extraction companies have lodged a record number of claims against nations rich and poor, opposing – similar to the UK mine – official measures to prevent environmental catastrophe. Companies have to date won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP