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Corporations are suing countries in private arbitration tribunals. The tribunals meet in secret. And no one can challenge their ruling. These lawsuits bear no semblance to constitutional proceedings. It's antidemocratic in a way that courts are not. Corporations are suing against decisions governments made for their citizens. What is democracy? If not allowing people to have a voice in their destiny? It's scary. It's about compensation about billions in damages. with taxpayers footing the bill, and lawyers making millions. That is billions and billions and billions of dollars of claims. It's been a bonanza for the legal industry that's growing up around these treaties. And ultimately it only exists because everyone expects that the public will have to pay. These investor-state disputes have become a business model. We see people speculating on the outcomes of corporate attacks on governments. This is in my eyes a perversion of the system. How does the businessof investment arbitration work? What role does it play in the proposed TTIP agreement with the USA? It's a hot topic of discussion. Already, there are thousands of agreements that allow for investment arbitration worldwide. And no other country has signed more of these treaties than Germany. CORPORATIONS SUE - WE PAY HOW INVESTMENT ARBITRATION IS UNDERMINING THE RULE OF LAW Hamburg, fall of 2011. Two lawyers at the law firm Luther are preparing a complaint. REENACTMENT Against the Federal Republic of Germany. Their client: the nuclear power corporation Vattenfall. The Swedish company is suing for 4.7 billion euros in damages. A private arbitration tribunal is to decide. Why? Berlin, March 12, 2011. A day of shock for Germany and the world. Emergency meeting at the Chancellery. The whole world is talking about one thing only. A tsunami has hit the nuclear power plant Fukushima. The situation is out of control. REENACTMENT We were at the Chancellery. Ronald Profalla, Chancellor Merkel, the Minister of the Environment Norbert Ršttgen and me. FORMER INTERIOR MINISTER OF GERMANY We had a conference call with the party leaders. Finally, Merkel got up and said, "I'm going to talk to the press." Everyone knows that in my opinion, the peaceful use of nuclear power is responsible and acceptable as a technology to bridge the gap. However, the safety of the nuclear power plants and thus the safety of the population, is the most important factor. The situation in Japan is getting worse by the hour. The question was, do we need to shut down our nuclear power plants in Germany? The four of us were sitting there... And Chancellor Merkel, or maybe it was Norbert Röttgen, I don't remember, said we have to shut down Germany's seven oldest plants earlier than planned. Preferably right away. At the same time the utility companies got together for an emergency meeting. They were nervous. REENACTMENT What if the government really orders nuclear power plants to be shut down? We didn't really discuss the ramifications this would have for the utility companies. No one said, "Poor E.ON, poor RWE." TURN ON THE SUN! Hundreds of thousands took to the streets. Out of fear. Germans don't want nuclear power anymore. They demand a definite phase-out. We got together in a hurry in Berlin, talked to Merkel and analyzed the event. FORMER GOVERNOR OF THE STATE OF SCHLESWIG-HOLSTEIN FORMER GERMAN MINISTER OF ECONOMICS The decision was made on Sunday by the party leaders Merkel, Seehofer and Westerwelle. REENACTMENT A new era is dawning in Germany. Chancellor Merkel makes a decision. Germany is to phase out nuclear power completely and earlier than planned. Fukushima has changed my stance on nuclear power. FEDERAL CONSTITUTIONAL COURT All utility companies sue against the phase-out at the Constitutional Court. Including Vattenfall. As a German company, Vattenfall filed a constitutional complaint with the other utility companies, which was completely constitutional. PROFESSOR OF INTERNATIONAL LAW However, Vattenfall is in a privileged position. Their holding company is in Sweden. As a foreign corporation, Vattenfall can also sue at a private tribunal. But to do so, their lawyers have to find a loophole. An agreement with Germany that would enable them to sue. And they do find a treaty. One that had long been forgotten. The Energy Charter Treaty. This was new to me too. Vattenfall got out this "Energy Charter Treaty." FORMER ENVIRONMENTAL SENATOR OF HAMBURG They took additional legal action with it. A treaty with the countries of the former Soviet Union to protect European corporations in unstable democratic countries. Germany and Sweden signed the treaty, too - 24 years ago. They didn't think that clever lawyers might use it later. INTERNATIONAL ARBITRATOR, MUNICH It served to protect our rights against a treaty partner whose legal system was considered inferior to ours. Now this treaty boomerangs back to us. We weren't expecting that. We always thought it didn't apply to us. It was supposed to protect Germans in Pakistan, Ecuador, etc. When we see this treaty being used now also among countries and economies that up to now have trusted each other's legal systems, it's a kind of misuse. The case is accepted. The lawyers go to Washington, D.C. The trial is held in the World Bank building before an international arbitration tribunal. Three judges preside behind closed doors. Closed to the public. Vattenfall can pick a judge, Germany too. Both parties agree on the chairperson. These judges are international star lawyers. Private people judging Germany, a sovereign state. They might call themselves judges, but they're not. To be a judge, you have to have an institutional context and safeguards of your independence. LAW PROFESSOR, TORONTO The judges are usually lawyers with an economic interest in doing more of these cases, so they're not impartial. These cases are usually not open to the public. They bear no semblance to constitutional proceedings. The tripartite tribunal ruling about Germany's nuclear exit is binding. No one can dispute it. German taxpayers would pay for the damages. Ordered by three private arbitrators. The case is still pending. The basic problem of this whole system is that it was developed by diplomats with no practical experience. And they drew up very short treaties based only on principles. INTERNATIONAL ARBITRATOR, MADRID They never had a real idea of what the investors and their lawyers, based on these few principles, could conjure up. New York. Home of the biggest law firms specializing in investment arbitration. Their lawyers make up to US$700 an hour. A small elite divides up the market among themselves. There's a gold-rush atmosphere in the industry. It was an emerging area of law. Like the Wild West of law. POLITICAL SCIENTIST, WASHINGTON, D.C. It allowed you to make things up. But it's also exciting because there was a lot of money in it. It's been a bonanza for the legal industry that's growing up around these treaties. And ultimately it only exists because at some point, everyone expects the public will have to pay. Legal scholar Gus van Harten has analyzed investment arbitration cases for years. He's trying to find out how the number of cases has developed. Van Harten makes an exciting discovery. In 1989, for instance, not a single lawsuit was filed. Then, 38 claims were registered publicly up to 1996. Then, this number rose rapidly. 2012 alone saw 50 new claims. 2013 another 50. By the end of 2014, there were more than 600 cases. We've also seen an increasing boom of lawsuits against developed countries. Western European countries have been hit with many lawsuits just in the last few years. So I still see a lot of room for growth in this system. And what do I mean by growth? I mean growth in the business opportunity for lawyers and arbitrators and others involved in these lawsuits to access public money. That's where the growth lies. It's a new way to access public money. What's the reason for this rapid increase? Are these claims really just about compensating losses? TORONTO, CANADA In recent years, few countries have been hit more by investor-state dispute settlement (ISDS) than Canada. Canada has had a free trade agreement with the US since 1994. Canada is the only Western developed country that has ever accepted ISDS with the United States. We're actually one of the world's most sued countries, always by US companies. Because we signed one treaty that allowed the ISDS with the United States. So Canada in a way is like the canary in the goldmine for what happens to a developed economy when you allow ISDS for US companies in your economy. We're going to Nova Scotia, a peninsula on the North-Eastern tip of Canada. This area subsists on tourism and lobster fishing. But the idyll is in danger. The US corporation Bilcon wants to build a giant quarry here to quarry basalt for construction. The plan is for giant ships to transport the basalt to the USA. Resistance is growing among the locals, who fear for their environment. The fishers fear for their livelihood. Kemp Stanton's family has been catching lobsters here for more than 250 years. Right by this stretch of shore where the US company wants to build the quarry. Bilcon would not have to pay royalties to the province. If you take out 20 or 30 of our lobster fishing licenses... LOBSTER FISHER ...then the little store can't stay in business. The government won't keep up a wharf or a road for a few people. So it's a quicker way to... depopulate the area. Kemp Stanton won't put up with that. He studies the environmental laws and takes the offensive. He starts a citizens' group with Don Mullin. They fight the quarry plans for five long years. Overwhelmingly, there was fear. Overwhelmingly, there was resignation that you couldn't win this fight. Because the belief in a small community is you can't fight big business, because they have the money and resources. We don't have that. And yet the community was so concerned that it would lose its quality of life. CITIZENS' GROUP SPOKESMAN The Canadian government gives the case to an independent expert committee to review the damaging consequences of the planned quarry. They use the same measures that apply for domestic companies. They conclude the impact would be so great it couldn't be made up by compensatory measures. The committee rejects the project. on Mullin and Kemp Stanton succeeded. I could say I was extremely relieved. It's almost a feeling of disbelief that we had won. It took up four or five years of my life. Every time I wasn't fishing, I was doing something to stop the quarry. And there you think, "It's over with! We won!" But the feeling of happiness doesn't last. The US corporation files a lawsuit at an international arbitration tribunal. REENACTMENT Canada and the USA have an agreement that allows for this. The corporation demands compensation. German arbitrator Bruno Simma presides over the case. He chairs the tribunal which issues a surprising ruling. The majority of the tribunal saw a violation of fair and equitable treatment, which is a key term in investor-state cases. ARBITRATOR, BILCON VS CANADA Of course you can argue about what fair and equitable means. And yet, Simma rules in favor of the corporation. Only one other arbitrator agrees with him. Thus, two private persons order Canada to pay damages. Supposedly, because the corporation was not treated fairly and equitably. This was a phrase that was agreed upon on a diplomatic level, a term everyone sort of understood. If you put that before a court of law dealing with a concrete case, it makes it very difficult. So the arbitrators decide what they think is fair and equitable. The moment when those standards as fair and equitable treatment have been applied in an extensive way, meaning that any legislative change... PROFESSOR FOR INTERNATIONAL LAW, MADRID ...which impairs or brings with it as a consequence that a certain expected investment is not longer going to be possible... This is in my eyes a perversion of the system. The amount of compensation is still being negotiated. The US company is asking for US$300 million from Canada. But for what? The company hadn't started building the quarry yet. The compensation, they say, is for lost future profits. If you can make US$300 million and not have to build the quarry, it'd be stupid to build it. You probably wouldn't make that much anyway. And you'd have to do a lot of work. These lawsuits are happening because the corporations are saying, "We might get a piece of some pie here." The pie being the taxpayers' money. And the more lawsuits come up, the more money these corporations demand. More and more, the cases are not about damages already done. New York. We're meeting a big player in this industry. One of the lawyers who usually operate in obscurity. Selvyn Seidel. He won't talk about his current cases. He's discreet, but talks about the context. You can expect a claimant to face a very stiff litigation fee, maybe four, five, seven, eight million dollars from beginning to end. Such a case is going to be expensive, long, complicated... LAWYER ...and hard to prosecute, which means many of the claimants can't afford it. That's the niche Seidel fills. He brings two parties together. Those who want to sue and those who want to invest in such litigation. So-called litigation funders. Seidel, the broker, looks for investors to give companies money so they can sue. A whole new industry. The stakes are high, the profits even higher. If the investor puts in US$5 million, and it's settled in one year, they get back US$15 million. That's what they often look for. But that's not the end of it. LITIGATION FUNDER They often also ask for a percentage of the recovery. Let's say the claim itself recovers US$100 million. So the investor who recovered the US$5 million in a year, maybe it's a settlement, will want back the three-to-one, or the US$15 million, plus the 5%, let's say, or another US$5 million. That's US$20 million for an investment of US$5 million. These arbitration cases have become a business model for Seidel and others. Every case means capital. And capital can generate profit, revenues for those who know what to do with them. And the litigation financiers earn plenty, too. Burford, the biggest US financier, increased its profits nine-fold in 2011. Juridica, their British competitor, achieved a profit rise of 578%. They're not only profiting off the surge in investor-state cases. POLITICAL SCIENTIST, WASHINGTON, D.C. They're fueling it, so that more corporations launch more cases against sovereign governments over domestic policies. The litigation funders are the ones greasing the wheels of this system. Selvyn Seidel needs fresh money for his business model. He's also constantly looking for new cases. And he found one. "The next big thing" is Europe. You see countries who are struggling, and they will generally spawn, innocently or not, claims against it. So this whole area will grow. The euro crisis as a lucrative business field? Brussels, October 2011. European Union crisis summit. Greece is about to become insolvent, thus endangering the whole euro zone. Europe's crisis managers face difficult negotiations. The banks are to help in solving this crisis. They're supposed to waive parts of the Greek debt. Chancellor Merkel is to convince< the banks to do so. PRESIDENT, EUROPEAN PARLIAMENT Without that debt cut, many would've taken to the barricades. Negotiations go on all night. How much can the banks waive? The "hair cut" is the subject of a tough bargaining session. The banks are to waive at least half the debt. The politicians won't budge. The banks understood... FORMER PRIME MINISTER OF LUXEMBOURG ...the gravity of the situation when we told them that they may even consider the "big solution", i.e. cancelling the entire debt. That contributed to the banks agreeing to forego half the money they were owed. It's a bloody battle. But the politicians win in the end. I think we Europeans demonstrated tonight that we drew the right conclusions. We analyzed and specified the causes of this crisis and took steps towards solving the problems. Merkel got a lot done that night for the euro and Europe's citizens. But did the crisis managers expect cunning lawyers to torpedo the decisions made in Brussels? Hamburg. The law firm Luther that also works for Vattenfall. The lawyers realize this hair cut offers new possibilities for their clients. They advertise them openly in their newsletter. "Investors don't have to limit themselves to the offers the government makes them." They could sue Greece. Similar lawsuits have proven successful in the Argentinian crisis. Is Greece "Argentina reloaded"? the newsletter asks. REENACTMENT Another crisis-ridden country attracts the industry's attention. Madrid. Spain is hit by the financial crisis. Suddenly, the pressure is on. The big hit was in 2009. FORMER MINISTER OF INDUSTRY OF SPAIN Millions of jobs lost were lost. The economy in a moment came really to a stop. It was halted. SPANISH PARLIAMENTARIAN There was a standstill of the economy. At this moment, Spain was at the brink of becoming insolvent. The crisis worsens. The state installs a multibillion euro austerity package, imposing massive cuts on its citizens. Health expenditures are cut by 22%. Education by 18%. But the EU keeps pressuring. There were many recommendations from European Institutions for us to reduce the deficit. And one important part was the energy deficit. So we had to do something with that. The Spanish government has to pay millions in subsidies to solar companies. To support renewable energy, it had lured this industry to Spain when times were better. This has now become a trap for the government. A meeting is called at the Spanish Ministry of Industry. The government wants the companies to make concessions. We sat down with them and said, "We have to do something." The wind and the thermo-solar sector found it reasonable to share this effort. But the photovoltaic sector said no. But the government has no choice. It has to reduce the subsidies. German companies are affected too. One of them is Munich-based KGAL. Not an industrial, but an investment company. They invested in Spain in 2007 by buying photovoltaic fields. KGAL decides to take Spain to international arbitration, claiming loss of future profits. Despite the crisis the country is in. KGAL is one of the companies that launched one of the first lawsuits against Spain around November 2011. It was a lawsuit that 15 solar investors launched together. The company won't comment due to the ongoing proceedings. Cecilia Olivet from the Transnational Institute has systematically analyzed the solar industry's investments. While researching, she came across a peculiarity: a solar field near Toledo. It was put into operation in 2011, long after Spain had reduced its subsidies. KGAL owns the field. We found that KGAL continued investing during 2011. Where profits still great enough, in spite of the cuts to subsidies? Other companies even invested after subsidies were cut. Did they invest just to sue for damages later? Many investors who came then knew very well that the system had been adjusted and would be readjusted by the new government. So it was clear that some investors tried to benefit from the situation. SPANISH PARLIAMENTARIAN Cecilia Olivet found more inconsistencies. She notices something very odd. There are Spanish investors among the plaintiffs. Even though only foreign companies are allowed to go to arbitration tribunals. There were two Spanish investors, big tycoons with fortunes in Spain who owned part of the solar parks. She researches the companies behind the lawsuits. One of them is Construction Investments, located in Luxembourg. She discovers the company has neither staff nor turnover. Luxembourg. The company's not at the listed address. Just an office called Intertrust. They created what we would call phantom companies, mailbox companies in the Netherlands and in Luxembourg. And then using those investment vehicles, they were able to sue their own government. So not just foreign investors can use arbitration tribunals. Domestic companies can sue as well, using subsidiaries and mailbox companies. Another loophole for clever corporations. More than 20 solar investors are currently suing Spain. The cases are still pending. If the tribunals rule against Spain, the country will face billions of euros in claims. Money that Spain's citizens are currently trying to save with extreme cutbacks. Governments should always have the possibility to change legislation and adapt legislation to the needs of society, of the people, the voters who are the basis of the sovereignty of a democracy. But is this sovereignty still a given? Can countries freely decide about measures, knowing they might be sued? Foreign investors can use their new powers under these treaties to pressure governments to change their decisions. What can happen is, when a foreign investor's lawyer or lobbyist... LEGAL SCHOLAR, TORONTO ...tells officials behind the scenes, "Here is the power we have to sue your country and get a lot of money in compensation," it can certainly have an impact in some cases. HAMBURG, SPRING OF 2009 Such cases exist. In Germany too. The law firm Luther in Hamburg is preparing another lawsuit. The lawyers are discreet. The lawsuit is against Germany. The local government of Hamburg is being targeted. They are asking for 1.4 billion euros in compensation for their client Vattenfall. The complaint was never officially published. Flashback: the Hamburg election campaign of 2008. Hamburg's Green Party is fighting against the coal-fired power plant Moorburg. Construction has begun. The administration had already given Vattenfall a license. The Green Party wants to revoke the decision. A popular sentiment. Hamburg's citizens vote for change. The Green Party is in the coalition and makes good on its promise. They tighten the laws. FORMER ENVIRONMENTAL SENATOR OF HAMBURG We restricted their use of water from the river Elbe to protect the fish. So Vattenfall realized they'd have to build a cooling tower. Which forced Vattenfall to spend hundreds of millions more. Of course, they didn't want to do that. FEDERAL CHANCELLERY Berlin, July 15, 2008. Vattenfall intervenes at the highest level. FORMER MINISTER OF HAMBURG They mobilized their expensive lawyers and lobbyists and went to the Chancellery. These big corporations are known for pulling strings, which is what they did. The intervention at the Chancellery didn't yield results. Vattenfall's internal documents say, "The meeting did not produce any substantive result." "No agreement was reached" at the second meeting either. The corporation decides to sue. But not in Germany. They choose an international arbitration tribunal in Washington, D.C. Vattenfall had appointed a Swedish lawyer to be their arbitrator and Germany had appointed Larry Craig as its appointee. I happened to be known by both arbitrators. They asked whether I'd be president of the tribunal. INTERNATIONAL ARBITRATOR, MONTREAL I said, "Fine." The proceedings are ongoing. Far away from Germany. Without any information leaking to the outside. All Hamburg knows is that Vattenfall wants 1.4 billion euros in compensation. A lawsuit like that builds up pressure. No one knows what the outcome will be. FORMER MINISTER OF HAMBURG If we'll be partly responsible for taxpayers having to pay billions of euros. Does Vattenfall really want compensation? The proceedings in Washington take a surprising turn. I got a notice that they were stopping the proceedings for the time being. It was obvious they were in negotiations. Clearly in settlement discussions. Why would Vattenfall want to negotiate with Hamburg? Vattenfall didn't want compensation. They wanted to get rid of the restrictions. Vattenfall wants to negotiate with Germany's environmental authority. But at what price? Basically, the Elbe river was not to suffer under the coal power plant. That was our basis for negotiating with them. FORMER MINISTER OF HAMBURG Of course we wanted to get this over with, without getting a tribunal ruling and having to pay 1.5 billion euros in compensation. The negotiations take place in secret. Hamburg's legislative assembly is not informed. The content of the settlement remains unknown. Nothing is made public. In the end, the coal power plant that the Green Party wanted to stop gets built. It went on line in 2014. Until recently, the Vattenfall settlement was kept under wraps. Legal scholar Markus Krajewski got access to the documents and analyzed them. These are no longer the restrictions the environmental authority wanted. PROFESSOR FOR INTERNATIONAL LAW There's no doubt that this case influenced the requirements. They're now able to run the plant at times that they weren't supposed to before. Of course we made certain concessions to Vattenfall. Corporations influencing governments' decisions. Made possible by private tribunals. The threat of a lawsuit alone can alter political decisions. But the Moorburg case isn't over. Now the European Commission is suing Hamburg. Why? The settlement with Vattenfall violates European policy on nature conservation. Did the government make too many concessions to Vattenfall? If Germany loses the lawsuit with the European Commission, Germany will have to reissue the original restrictions that they couldn't enforce. And then Vattenfall could sue for breach of settlement. And get compensation. Germany could face new claims for damages. Just another lucrative opportunity for someone like Selvyn Seidel. He even has a new idea on how to make it more tempting for the financial industry. He wants to combine different lawsuits into stocks. If things go well, this could lead to returns of up to 400%. LITIGATION FUNDER The claim is like an asset. And you can invest in it like in a stock. Often the damages claimed are quite high, hundreds of millions or many in the billions. So it's an investment that has a lot at stake. Because if there is success, the returns are high. Imagine that in our legal system you could bet on the plaintiff or defendant. POLITICAL SCIENTIST, WASHINGTON, D.C. It's not a horse race. This shows how far we've come from a respected legal regime that corporations or investors are able to essentially bet on the outcomes of these cases. Banks, hedge funds and insurance companies are all investing in this growing market. It's like a casino, and the party for litigation funders is not over yet. Money goes where growth industries go. As this grows, more corporations launch cases against governments. And it's not an illogical move if you're private equity or an investor looking to place your money after a financial crisis to recognize that this might be a place to hedge your bets. The industry will always be yielding a good return. It may be that the industry will end up with lower returns per case, but absolutely overall there'll be more cases and more profits. So we'll see. But I think the industry is going to continue to grow. It's growing very, very strongly now and quickly. The financial industry and its lobbyists will do anything to keep the ball rolling. Is that why the US is pushing for investment arbitration in the TTIP agreement with Europe? Some 53,000 US companies are currently active in Europe. Any of them could file a suit. The EU has recognized the system's vulnerability and is pushing for reforms. Europe wants to regulate. And a standing court. With permanent judges. I'm not optimistic that this is going to reach a conclusion that will put laws into effect, at least in the near term. Suddenly, there's a need for change. INTERNATIONAL ARBITRATOR, MADRID Now the system's starting to think about this. In ten years, it will have changed completely. But it'll take ten years. Things are slow on an international level. And there's another problem. Europe already agreed to an agreement with Canada. CETA. CETA is supposed to have investment arbitration too, albeit a reformed system with more precise guidelines. Although CETA is an agreement with Canada, US corporations can use it as a loophole to sue Europe. If US corporations invest in Canada and set up subsidiaries there so they can structure their investments in Europe through them, which is possible, then they could sue Europe that way. They would then be empowered to challenge, to attack EU policies, not under TTIP but under CETA alone. And we found that eight out of ten of those US-corporations that are doing business in the EU would be empowered through CETA alone. So it's a Trojan horse. Be awfully careful what you give away in these negotiations, because you might think you didn't give away very much, but a smart lawyer can turn it into: you gave away the farm. It's uncertain if the EU's reforms will succeed in the TTIP negotiations. It's also uncertain if these reforms could stop the arbitration industry. And even if they can, would US companies use CETA to sue the EU? Why are these corporations enjoying these legal protection privileges at all? Is this even necessary between developed, democratically ruled countries? It's a valid question. I'm sure we could live with a TTIP without investment arbitration. Germany already has 130 investment treaties. They are as good as forever. Even if the countries end them, the right to sue will remain for 30 more years. Why would you want to give this kind of privilege to foreign investors? What is the benefit to the public? That is the big gap in the debate. Subtitles by Matthew Way, for Linguatransfair, Berlin, Germany www.linguatransfair.de