“Investment arbitration lawyers are not just ambulance chasing. They are also creating the accidents because, doubling as arbitrators, they often interpret the treaties very broadly. So it’s a bit like ambulance chasing after your friend has put banana peels on the road.”

--Professor Gus Van Harten, Osgoode Hall Law School, Toronto. (Source : Profiting from Injustice, p. 24)

Never has an admission of pure premeditated fraud, sounded so benign. Professor Van Harten sorely understated the corruption of the investment arbitration process or ISDS. In fact, ISDS is the fourth component of a global corporate legal regime intent on nullifying any rule of law which fails to bow down before corporate overlords. Though politicos such as President Obama swear on their mother’s grave, that environmental, labor and human rights protections have been built into the latest incarnation of an FTA or ‘free trade agreement’; those dubious protections are subordinated to the planned institutional deceit of the newly minted ‘judicial-industrial complex.’
This ‘judicial-industrial complex’ has at its disposal four legal inventions which effectively nullify democratic rule, as it is now known. Meet the new global corporate law and the ‘legal mafia’ which runs the corporate shop.

The new global corporate law…unelected and undemocratic……

Whether it’s the TPP, TTIP or any other alphabet soup treaty; at its core is the ‘new global corporate law.’ This new corporate legal regime establishes a unique form of segregation between corporate ‘citizens’—and everyone else. Otherwise known as the lex mercatoria; this new global corporate law unilaterally grants transnational corporations the privileges of kings—minus any accountability or transparency, through various legal contrivances otherwise known as ‘normative transformations.’

Legal contrivances behind BIT’s and IIT’s…4 Horsemen of economic Apocalypse…

The ‘normative transformations’ have come to us from the world of corporate law, and seem to have no history of democratic election. Professor Hernandez Zubizarreta of the Hegoa-Institute of Development and International Cooperation authored a paper on ‘normative transformations’ and their devastating impact on human rights, the rule of law and democratic rule itself.
These ‘normative transformations’ are the ‘get out of jail free card’ demanded by corporations. They were crafted by the world of corporate law, and are known as : downwards harmonization or harmonization, regulatory convergence, normative principles and private tribunals (aka..ISDS). Though these devices are specifically identified in the EU’s TTIP; they pervade all International Investment Treaties or IIT’s, and were evident during the TPP negotiations. They are the ‘Four Horsemen of the Economic Apocalypse.

Harmonization…almost always downwards….

Harmonization, according to Zubizarretta is defined as…”a practice by which controls and standards that limit capital are systematically downgraded; if controls on the financial sector are stricter in the US, European regulations will be taken as the basis”…and so on. (Source : https://www.tni.org/files/download/01_tni_state-of-power-2015_the_new_global_corporate_law-1.pdf)

He added that this harmonization goal is …”achieved by deregulating the rights of people in all areas that are susceptible of ‘being bought or sold’, since by the logic of capitalism, barriers that exempt collective goods such as water, health or food-from market profit must be abolished.” (Source : https://www.tni.org/files/download/01_tni_state-of-power-2015_the_new_global_corporate_law-1.pdf)

Harmonization is one of the tools crafted by the ranks of corporate attorneys, and can be adjusted either upwards or downwards, though the issue of downwards harmonization remains the tool of choice in corporate legal offices. Downwards harmonization is a regulatory ‘race to the bottom’, whose sole cause is to nullify any laws which might reduce present or future profits. Human rights, (including laws against forced labor or slavery, are sacrificed on the altar of corporate profit. Any law, regulation or previous treaty agreement which is viewed as a potential obstacle to corporate profit or anticipated future profit—is effectively repealed. No law is safe under this doctrine—except the alleged self-appointed rights of corporations—period.

Regulatory convergence---the TISA effect…

Regulatory convergence grants lobbyists and corporate attorneys the power to create treaties, minus legislative and public oversight. Keep in mind, lobbyists and corporate attorneys are paid thousands of dollars an hour by corporate, so a major corrupting conflict of interest is baked in, along with the chocolate chips. Legislators are expected to ‘rubber-stamp’ approval of a blank check to corporate. No pretense of legitimacy is offered. To quote Zubizarreta; …”corporate lobbies acquire an unexpected level of participation in the drafting of legislation—a well-known phenomenon in the elaboration of norms.” (Source : http://europa.eu/rapid/press-release_SPEECH-13-801_en.htm)
(Source : http://corporateeurope.org/sites/default/files/ttip_es.pdf 17)

The fact that corporate lobbyists and attorneys have become unelected legislators—evades the US Department of Justice. The additional fact that this level of legislative incest would constitute multiple charges of racketeering, corruption and premeditated fraud in the real world, remains a crass joke in the ranks of lobbyists and corporate law firms. The recent furor over the leaked TISA chapter by WikiLeaks is a perfect example of ‘regulatory convergence’ at work. (Source : http://www.nakedcapitalism.com/2015/06/gaius-publius-fast-track-will-also-apply-to-tisa.html)

Furthering this ‘legislation by lobbyist’ is a new proposal for the TTIP, called the ‘Regulatory Cooperation Council’, which will serve as an additional ‘regulatory filter’ for all EU laws or ‘norms’ deemed conflicting with the TTIP treaty. This Regulatory Cooperation Council is not benign; rather it would operate as an independent entity, overseeing member states and act…”as a supranational legislative power that is beyond any democratic control.” (Source : http://europa.eu/rapid/press-release_SPEECH-13-801_en.htm)

The very notion that corporate attorneys and unelected diplomats plan to establish a council …”beyond any democratic control,” without prosecutors sharpening their knives on newly minted charges of corruption and treason; only demonstrates how corporate forces are systematically dismantling democratic rule.
(Source : http://corporateeurope.org/sites/default/files/ttip_es.pdf 17)

This is not limited to the TTIP. During the 17+ rounds of negotiations for the TPP, some 600 lobbyists converged and wrote the ‘treaty’, while President Obama denied meaningful access to members of Congress. (Source : http://www.huffingtonpost.com/2015/02/13/lloyd-doggett-tpp-trade_n_6680624.html )

While it is true that members of Congress were denied access to the TPP draft texts and were threatened with criminal prosecution by the President if they revealed details of the TPP to the public—(due to its unduly classified status); it is also true that Congress had the right to declassify the text at any time. McClatchy reported on this congressional power in August of 2013. (Source :http://www.mcclatchydc.com/news/politics-government/congress/article24751963.html )

The Senate version is in Section 8 of Senate Resolution 400, which established the Senate Select Committee on Intelligence. The House version is in 11(g) of the House Rule X.(Source : http://clerk.house.gov/legislative/house-rules.pdf

Normative principles…

Normative principles represent another venture into the legal jargon quagmire. Though blatantly listed in the TTIP; these normative principles are embedded in most international investment treaties or IIT’s. These ‘normative principles’ further subordinate existing laws to mandates written in a given IIT. Frameworks implemented to support ‘national treatment’, ‘most-favored nation’ or the ‘umbrella clause’, are all vulnerable to creative interpretation by the same incestuous group of corporate attorneys and arbitrators. These ‘normative principles openly favor corporate power by …”building a fortress around their rights.” (Source : https://www.tni.org/files/download/01_tni_state-of-power-2015_the_new_global_corporate_law-1.pdf) Any claims of abusive legal practices, unjust enrichment, good faith requirements or equity concerns, become irrelevant as these legal maxims are subordinated to ‘normative principles’ as written in the TTIP or any other IIT.

Private tribunals and ISDS...

Of these four ‘normative transformations’; the private tribunal remains the trump card for corporate rule. Otherwise known as the Investor-State Dispute Settlement or ISDS; this particular transformation is the enforcer for the other three, (ie. downwards harmonization, regulatory convergence and normative principles). ISDS was created under Chapter 11 of the NAFTA trade agreement ushered in by Bill Clinton. (Source : http://www.state.gov/s/l/c3439.htm ) Without the private tribunals or ISDS; the other transformations would fold like a house of cards.
ISDS is a form of dispute settlement which serves as judge, jury and executioner, involving three international corporate attorneys—period. The process is secretive, and lacks any right to appeal. Transnational corporations can effectively sue national, state or local governments for the crime of democratic rule, under a vague claim of ‘expropriation’, ie. or takings, but governments are denied the right to countersue. ISDS is the Star Court Chamber of corporate ‘law.’ None of the players are elected, but they claim the right to trump established rule of law, through these ‘normative transformations’, with ISDS being the enforcer. (Source : http://www.opendemocracy.net/cecilia-olivet-pia-eberhardt/profiting-from-injust-challenging-investment-arbitration-industry).

CEO study…Profiting from Injustice…

Corporate Europe Observatory in conjunction with the Transnational Institute published a major study analysis of ISDS in 2012, titled—Profiting from Injustice; How law firms, arbitrators and financiers are fuelling an investment arbitration boom. Divided into segments; the study investigated the total lack of accountability and transparency among the arbitrators and corporate law firms, otherwise known as the ‘legal mafia.’ (Source: http://corporateeurope.org/sites/default/files/publications/profiting-from-injustice.pdf)

Investment treaty disputes under ISDS are big business for law firms resulting in disastrous losses to taxpayers. Make no mistake—this is big business.

“Bringing a billion dollar claim is no longer enough to stand out in a survey of international arbitration. Nor is it enough to win a measly $100 million…What it takes to distinguish yourself these days is a $350 million award, minimum.” (Source : American Lawyer Magazine)

The cost is also expressed in human terms. German airport operator Fraport forced the Philippine government to ISDS arbitration, which cost the Philippine taxpayer $58 million US currency to defend two cases. According to one of the study authors, Cecilia Olivet; this cost could have supported 12,500 teachers for a year, vaccinations for 3.8 million children against tetanus, polio, diphtheria and TB. (Source : Olivet, Cecilia (2011)The Dark Side of Investment Agreements, December, p. 4.)
Anonymous sources inside this industry estimate that over 80% of legal fees go straight into the pockets of ‘counsel.’ (Source : Confirmed by a conference of practitioners in 2011, summarized here : http://kluwerarbitrationblog.com/2011/10/05/arbitral-institutions-under-scrutiny/ [19-03-2012].)
Law firms can earn $1,000 US per hour, per attorney. Often entire teams work on these cases. (Source : (OECD (2012), see endnote 21, p. 20.) The International Center for Settlement of Investment Disputes or ICSID published figures which document the fee per arbitrator at $3,000 US daily. Travel and living expenses for arbitrators are also paid as an additional stipend. (Source : International Center for Settlement of Investment Disputes (2008) Schedule of Fees (Effective January 1, 2012), p. 1. )
With a fee schedule like this; there is no incentive to establish ‘swift’ justice. Regardless of which side ‘wins’—the taxpayer in any nation, loses. All fees and settlements awarded to transnational corporations are paid by the taxpayer.
The World Bank International Center for Settlement of Investment Disputes (ICSID) is one of the main handlers of the over 450 investor-state cases since 2011. (Source : ICSID (2012)The ICSID Caseload Statistics (Issue 2012-1), p.7.)

Nullifying democratic rule through ISDS…

The White House has gone on record claiming that this…” trade deal will require our trading partners to live up to the strongest labor standards in history.
These high standards will help workers by:
• Providing the right to form unions and bargain collectively
• Prohibiting forced and child labor
• Protecting against employment discrimination
• Establishing a minimum wage and workplace safety”
(Source : https://www.whitehouse.gov/blog/2015/06/05/terms-trade-questions-and-answers-presidents-trade-deal)
(Source : https://wwwwhitehouse.gov/blog/2015/03/04/see-what-most-progressive-trade-agreement-history-looks)

President Obama’s reassurances on TPP protections just don’t pass the ‘sniff test,’ when viewed through the lens of the new global corporate law, and these ‘normative transformations.’

Any law which is viewed by a transnational corporation as an ‘expropriation’ or ‘takings’ of present or unknown future profits—is a target for ‘theft by arbitration.' Corporate profit trumps all other law, from the Magna Carta to the present day. Democracy itself is sacrificed on the altar of corporate greed. Lawyers from the Milbank law firm explained how this attack on self-government works.

…”Adverse government actions do not have to take place only with autocratic rule. The populism that democracy can bring often is the catalyst for such actions.” (Source : Nolan, Michael/Baldwin, Teddy (2012) Minimising Risk in the Face of Government Action, Project Finance International, 16 May, 47-49, p. 49, footnote 1.)

Often the very threat of an ISDS case is enough to terrorize governments into submission. One of these pre-emptive strikes caused the Canadian government to abandon anti-smoking policies immediately after Big Tobacco threatened to pursue ‘compensation’ through ISDS. (Source : Tienhaara, Kyla (2010) Regulatory chill and the threat of arbitration, in: C. Brown and K. Miles (eds) Evolution in Investment Treaty Law and Arbitration, 606-627.)
A former Canadian government official described the very real abuse dished out from law firms in the five years since the inception of NAFTA’s ISDS provisions.

“I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides patent law. Virtually all of the new incentives were targeted and most of them never saw the light of day.” (Source : Greider, William (2001) The Right and US Trade Law. Invalidating the 20th Century, The Nation, http://www.thenation.com/article/right-and-us-trade-law-invalidating-20th-century# [07-10-15])

So much for Obama’s reassurances.

Law firms lobby to sabotage any ISDS reforms…

Debate has been raging in the EU over ISDS. Prior to the enactment of the Lisbon Treaty in 2009, arbitration law firms faced strong opposition from organized labor and civil groups demanding radical reforms aimed at leveling the playing field between public interest and private profits. A major demand was the abolition of the investor-state dispute settlement process itself. Additional demands included precise and restrictive language regarding rights and responsibilities and language articulating each nation’s right to regulate and govern, without ISDS economic warfare. (Source : Corporate Europe Observatory (2011) Investment rights stifle democracy, 31 March)

The ‘judicial-industrial complex’ responded with coercive methods. The Profiting from Injustice study cited how influential law firms such as Hogan Lovells, Herbert Smith Freehills and Baker McKenzie prepared a series of debates between their multinational corporate clients and selected EU policy makers. Major corporate clients who had successfully sued states under ISDS, such as Deutsche Bank and Shell were participants in these “informal but informed” meetings, along with various members of the European Parliament (MEPs). The MEPs understood; any existing or future BITs/IITs, along with ISDS arbitration—were ‘off the table.’ Investment ‘protection’ was to remain intact for transnational corporations, and nonexistent for labor, environmental and human rights complaints.

Conflicting interests of arbitrators…”who guards the guardians”…

It is widely known in corporate law circles that ISDS arbitrators…”do not normally see themselves as guardians of the public interest.” (Source : Park, W. and Alvarez, G.(2003) The New Face of Investment Arbitration: NAFTA Chapter 11, The Yale Journal of International Law, vol. 28, p. 394.)
One professor specializing in this field stated that …”Most arbitrators are experts in “anything but” human rights law.” (Source : http://www.globalarbitrationreview.com/news/article/29527/arbitrators-human-rights/ )

How can these arbitrators then decide complex cases pitting environmental, labor or human rights concerns against the alleged but unproven future profits claimed by transnational corporations? The arbitration industry doesn’t care. In fact, any criticism of the process or the prime players results in a professional thrashing. To quote Audley Sheppard, a partner at the Clifford Chance law firm; …”the arbitrati becomes an omerta, a closed society that vows to keep all others out.” (Source : http://www.globalarbitrationreview.com/news/article/30006/does-arbitration-need-breath-fresh-air/ )

According to the Profiting from Injustice study; there are approximately 15 arbitrators that have decided 55% of investment treaty cases as of 2012. Furthermore, it is common for arbitrators to ‘switch hats’, acting as counsel one moment, then posing as an allegedly unbiased academic then next, or morphing into an ‘expert’ witness until finally becoming a government representative. In any other legal setting, these attorneys or arbitrator/judges would have to recuse themselves to avoid corruption charges of conflict of interest or collusion. Here under ISDS, arbitrators can ignore the systemic conflict of interest without fear of professional or criminal retribution.

Dan Price…prime example of revolving door arbitrator….

Arbitrator Dan Price has worn many hats under ISDS; negotiating investment treaties, advocating ISDS as a corporate lobbyist, defending corporate interests under ISDS, promoting neoliberal policies as a media commentator and yes, working as an ISDS arbitrator.
In fact, Dan Price designed the investor-state provisions under NAFTA, and was one of the first US attorneys pushing corporations to sue governments using those same investor-state clauses he embedded in investment agreements. (Source : http://www.thenation.com/article/right-and-us-trade-law-invalidating-20th-century [16-11-2012].)
Price then went on to serve as arbitrator and counsel for multiple corporations, benefiting from the same treaties he helped negotiate. (Source: (Source : http://corporateeurope.org/sites/default/files/publications/profiting-from-injustice.pdf)

Casino capitalism…third party funding of investment disputes…

…”There is even the possibility –heaven forbid—that we could fund a case and then resell it to third parties, a bit like credit default swaps.” --Selvyn Seidel, Fullbrook Management (Source : Profiting from Injustice, p. 58)

Casino capitalism has made its way to the ‘judicial-industrial complex’. Third party funding of arbitration cases encourages a corporate culture which views the public treasury as a private ATM. Once again, according to the Profiting from Injustice study; such third-party funding encourages dredging up any type of frivolous complaints in order to increase legal bills. To quote Peter Snyder, CEO of New Media Strategies;

…”It’s basically venture law these days. So you have private investors coming in and trying to say ‘Hey, who can we sue next? I’m gonna put up five million dollars and lets’ do some discovery and see where we go from there and really try to reap a windfall.’ “ (Source: http://www.institute for legalreform.com/media/video/how-the-practice-of-law-is-being-commercialized [26-04-2012])
Additionally, third party funding has been deemed a …”legal no-mans land,” since this area of law practice is relatively unregulated, and any existing regulation has often been written by the third party funders. (Source : http://corporateeurope.org/sites/default/files/publications/profiting-from-injustice.pdf)

Conclusion

The inner workings of ISDS trace back to its creation in Chapter 11 of the now infamous NAFTA ‘free trade agreement.’ As it turns out, ISDS or the use of private tribunals for dispute settlement as opposed to actual courts, is one of several devices used by hordes of corporate attorneys, in what has become dubbed the new ‘global trade law.’ These agreements are dependent upon a foundation of vague jargon laden terminology , arcane twisted syntax and circular false logic.
This deceptive language is integral to the scam which is ISDS. ISDS is but one of four ‘normative transformations,’ described in corporate law. These ‘normative transformations’ are legal devices invented by corporate attorneys, in order to create ‘get out of jail free’ cards for would be corporate overlords. None of these transformations have ever been presented for a public vote, nor have corporate attorneys been held accountable for this fraud. These 4 normative transformations are the 4 Horsemen of the Economic Apocalypse.

Part 3 of this series will deal with the ramifications of these pseudo-legal devices, how to derail them and solutions intended to rebuild democratic rule.