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What is your understand our political system functions? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Emergence of Secret Arbitration Panels

Nowadays, overseas companies, and the oligarchs who own them, can sue nation states for the regulations they pass, at offshore tribunals made up of business advocates. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, or even businesses operating from this country. Access is granted exclusively to businesses operating from foreign soil.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but money the arbitrators decide the company would perhaps have made. The administration might be compelled to rescind the measure. It becomes deterred from enacting future policies of a similar nature, worried about being sued.

A System Running Rampant

Historically high figures of cases are being brought, as corporations take cues from each other, and hedge funds fund legal actions in return for a share of the takings. The consequence? National sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices made by legislatures is that this stipulation has been written – without public consent, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Twelve months ago, activists achieved a major legal triumph at the high court. The presiding officer determined that plans to excavate the first major coal mine in the UK for a generation, in northwest England, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have no impact on our carbon budgets. The incoming administration then withdrew the consent the Tories had approved. Now, this victory faces being overturned by an offshore tribunal reporting to exclusively the corporations bringing the case.

Last August, a corporate entity whose final controllers are based in the tax haven initiated proceedings against the UK government. Recently a arbitration panel in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. We have no clear indication how much this might be. Who is serving as its counsel in opposition to the state? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government passes a law, the high court supports it, then a foreign company contests it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he’ll use the tribunal to contest the penalties the UK levied against him after the Russian aggression. He has filed a claim against another European state on these grounds, seeking $16bn: an amount representing half state's annual revenue. Included in the legal team acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s hesitation in using frozen state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that such things were not possible. Previously, a former prime minister, championing the biggest and most dangerous of all these agreements, declared: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this issue labelled critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction has come to pass. Recently, oil and gas and resource corporations have initiated a record number of claims against nations both wealthy and developing, contesting – similar to the UK mine – government attempts to prevent global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP