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What is your reckon our democratic process functions? It could be something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. The law is maintained by the courts. Simple as that. Yet, that’s how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the oligarchs that control them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by business advocates. The cases are conducted behind closed doors. Differing from national judiciaries, these bodies grant no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses operating from this country. They are open only to entities based overseas.

Should an arbitration panel determines that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on real financial harm but funds the panel members decide the company might otherwise have made. The administration may have to rescind the measure. It will be deterred from introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being brought, as corporations learn from each other, and investment funds finance suits in return for a cut of the awards. The consequence? Sovereignty and democratic governance are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices made by elected bodies is that this provision has been incorporated – absent public approval, and often in conditions of total confidentiality – into trade treaties.

A Specific Case: The Whitehaven Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that proposals to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on our carbon budgets. The Labour government later cancelled the permission the former government had issued. Now, this victory faces being overturned by an offshore tribunal answering to only the corporations petitioning it.

During August, a firm whose final controllers are based in the tax haven filed a lawsuit against the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this could amount to. Which individual is serving as its counsel challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case at present, but it appears probable that he’ll use the tribunal to fight the penalties the UK imposed on him following the Russian aggression. He has previously started suing Luxembourg with similar intent, demanding a colossal sum: equivalent to half of state's yearly budget. Part of the counsel representing him there? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s procrastination in utilising seized Russian assets as collateral for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments could be blocking the finance Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that these scenarios could not occur. Previously, a government leader, championing the largest and riskiest of all these agreements, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An expert on this matter accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “once firms begin to understand the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were greeted by widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations across the economic spectrum, opposing – like the example of the Whitehaven project – official measures to stop global warming. Firms have so far won $114bn through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP