New reporting this week further exposes how Investor State Dispute Settlement, or ISDS—a legal system enshrined in thousands of global treaties and pacts, including the pending Trans Pacific Partnership (TPP)—empowers corporations and rich investors at the expense of citizens and democracy.
Under the ISDS framework, as Common Dreams has reported, multinationals are granted a parallel legal system through which they can sue governments, and therefore taxpayers, for loss of "expected future profit," with the power to overrule national laws and judicial systems.
"Workers, environmentalists, and human rights advocates don't get the right to use ISDS; only big corporations do," Sen. Elizabeth Warren (D-Mass.) has said. "That's a rigged system."
At the Huffington Post on Monday, journalist David Dayen outlined how "ISDS has increasingly become a way for rich investors to make money by speculating on lawsuits, winning huge awards, and forcing taxpayers to foot the bill."
"Here's how it works," he explained:
Wealthy financiers with idle cash have purchased companies that are well placed to bring an ISDS claim, seemingly for the sole purpose of using that claim to make a buck. Sometimes, they set up shell corporations to create the plaintiffs to bring ISDS cases. And some hedge funds and private equity firms bankroll ISDS cases as third parties—just like billionaire Peter Thiel bankrolled Hulk Hogan in his lawsuit against Gawker Media.
A "huge number of opportunities to sue," plus the prospect of uncapped awards, "have the ISDS claim-financing industry booming," according to Dayen.
"Hedge funds, private equity firms and institutional investors are flocking to fund lawsuits as they would any other speculative asset," he said, citing experts in the field. "And the lack of transparency means that lawyers acting as arbitrators or advocates in one case could be unnamed investors in other cases, and nobody would ever know."
Indeed, he wrote: "Once a venue of last resort for corporations wronged in a foreign jurisdiction, ISDS is now a playground where investors with no connection to the initial investment can get rich."
What's more, Dayen warned:
Giving financiers the ability to extract taxpayer dollars from around the globe transfers wealth upwards. It's another way the rich get richer by accessing tools unavailable to most citizens. That has massive follow-on effects for economic and political power worldwide, including right here in the U.S.
Meanwhile, the first part of a BuzzFeed News series published Sunday details how "[c]ompanies and executives accused or even convicted of crimes have escaped punishment by turning to" ISDS.
According to investigative journalist Chris Hamby:
Reviewing publicly available information for about 300 claims filed during the past five years, BuzzFeed News found more than 35 cases in which the company or executive seeking protection in ISDS was accused of criminal activity, including money laundering, embezzlement, stock manipulation, bribery, war profiteering, and fraud.
For example, Hamby tells the story of how battery factory owners in El Salvador, accused of aggravated environmental pollution and neglect, used the threat of ISDS to evade accountability—despite devastating lead contamination in Sitio del Niño, the town where the factory was based.
The BuzzFeed installment published Tuesday explores how "the mere threat of an ISDS claim" is often enough "to halt or roll back legitimate public-interest laws."
"It's like flashing a gun at a tense negotiation—better not to use it, but the guys across the table know it's there," Hamby writes of the threat of arbitration.
Later this week, the BuzzFeed series is also set to explore the concept of hedge funds betting on ISDS cases, as well as how the U.S. is uniquely vulnerable within such a system.
And as both Dayen and Hamby caution, pending trade agreements would dramatically expand this system—and in turn, these corporate-friendly consequences. Dayen pointed to a Public Citizen estimate that 9,000 new companies would gain ISDS rights to sue the United States under TPP alone. "That's 9,000 new opportunities for financiers to reach down into state and local coffers, in addition to the federal government, to grab cash," he wrote.
Both reporters note that countries including Indonesia, Ecuador, and India are "trying to renegotiate or nullify treaties containing ISDS," as Hamby puts it.
But perhaps, as Dayen wrote, "the easiest way to fix ISDS is to throw it out."