Crazy World We Live: The Secret Justice System That Lets Executives Escape Their Crimes

Imagine a private, global super court that empowers corporations to bend countries to their will.

Say a nation tries to prosecute a corrupt CEO or ban dangerous pollution. Imagine that a company could turn to this super court and sue the whole country for daring to interfere with its profits, demanding hundreds of millions or even billions of dollars as retribution.

Imagine that this court is so powerful that nations often must heed its rulings as if they came from their own supreme courts, with no meaningful way to appeal. That it operates unconstrained by precedent or any significant public oversight, often keeping its proceedings and sometimes even its decisions secret. That the people who decide its cases are largely elite Western corporate attorneys who have a vested interest in expanding the court’s authority because they profit from it directly, arguing cases one day and then sitting in judgment another. That some of them half-jokingly refer to themselves as "The Club" or "The Mafia."

And imagine that the penalties this court has imposed have been so crushing — and its decisions so unpredictable — that some nations dare not risk a trial, responding to the mere threat of a lawsuit by offering vast concessions, such as rolling back their own laws or even wiping away the punishments of convicted criminals.

This system is already in place, operating behind closed doors in office buildings and conference rooms in cities around the world. Known as investor-state dispute settlement, or ISDS, it is written into a vast network of treaties that govern international trade and investment, including NAFTA and the Trans-Pacific Partnership, which Congress must soon decide whether to ratify.

These trade pacts have become a flashpoint in the US presidential campaign. But an 18-month BuzzFeed News investigation, spanning three continents and involving more than 200 interviews and tens of thousands of documents, many of them previously confidential, has exposed an obscure but immensely consequential feature of these trade treaties, the secret operations of these tribunals, and the ways that business has co-opted them to bring sovereign nations to heel.

The BuzzFeed News investigation explores four different aspects of ISDS. In coming days, it will show how the mere threat of an ISDS case can intimidate a nation into gutting its own laws, how some financial firms have transformed what was intended to be a system of justice into an engine of profit, and how America is surprisingly vulnerable to suits from foreign companies.

The series starts today with perhaps the least known and most jarring revelation: Companies and executives accused or even convicted of crimes have escaped punishment by turning to this special forum. Based on exclusive reporting from the Middle East, Central America, and Asia, BuzzFeed News has found the following:

A Dubai real estate mogul and former business partner of Donald Trump was sentenced to prison for collaborating on a deal that would swindle the Egyptian people out of millions of dollars — but then he turned to ISDS and got his prison sentence wiped away.
In El Salvador, a court found that a factory had poisoned a village — including dozens of children — with lead, failing for years to take government-ordered steps to prevent the toxic metal from seeping out. But the factory owners’ lawyers used ISDS to help the company dodge a criminal conviction and the responsibility for cleaning up the area and providing needed medical care.
Two financiers convicted of embezzling more than $300 million from an Indonesian bank used an ISDS finding to fend off Interpol, shield their assets, and effectively nullify their punishment.

When the US Congress votes on whether to give final approval to the sprawling Trans-Pacific Partnership, which President Barack Obama staunchly supports, it will be deciding on a massive expansion of ISDS. Donald Trump and Hillary Clinton oppose the overall treaty, but they have focused mainly on what they say would be the loss of American jobs. Clinton’s running mate, Tim Kaine, has voiced concern about ISDS in particular, and Sen. Elizabeth Warren has lambasted it. Last year, members of both houses of Congress tried to keep it out of the Pacific trade deal. They failed.

ISDS is basically binding arbitration on a global scale, designed to settle disputes between countries and foreign companies that do business within their borders. Different treaties can mandate slightly different rules, but the system is broadly the same. When companies sue, their cases are usually heard in front of a tribunal of three arbitrators, often private attorneys. The business appoints one arbitrator and the country another, then both sides usually decide on the third together.

Conceived of in the 1950s, the system was intended to benefit both developing nations and the foreign companies that sought to invest in them. The companies would gain a fair, neutral referee if a rogue regime seized their property or discriminated against them in favor of domestic companies. And the countries would gain the roads or hospitals or industries that those foreign corporations would, as a result, feel confident building.

“It works,” said Charles Brower, a longtime ISDS arbitrator. “Like any system of law, there will be disappointments; you’re dealing with human systems. But this system fundamentally produces as good justice as the federal courts of the United States.”

Charles Brower

Danilo Agutoli for BuzzFeed News

He defended the lawyers who often serve as arbitrators, saying they “are very aware of their responsibilities. Unlike politicians, we are up for election every minute of every day — somewhere in the world, somebody is trying to figure out whom to appoint in a case. We’re only as good as our reputations.”

As proof that ISDS delivers justice, Brower pointed to a wave of nationalizations by the Venezuelan government, many while Hugo Chávez was in charge, that led to “huge awards against them for uncompensated expropriation.”

ISDS has not only put rapacious leaders on notice, its defenders say, but it has also encouraged investment, especially in poor countries, helping to raise overall economic development. Some even say that it helps avoid gunboat diplomacy and tense international showdowns because countries have agreed on a forum where they can resolve disputes involving major investments.

But over the last two decades, ISDS has morphed from a rarely used last resort, designed for egregious cases of state theft or blatant discrimination, into a powerful tool that corporations brandish ever more frequently, often against broad public policies that they claim crimp profits.

Because the system is so secretive, it is not possible to know the total number of ISDS cases, but lawyers in the field say it is skyrocketing. Indeed, of the almost 700 publicly known cases across the last half century, more than a tenth were filed just last year.

ISDS has morphed from a rarely used last resort into a powerful tool that corporations brandish ever more frequently.

Driving this expansion are the lawyers themselves. They have devised new and creative ways to deploy ISDS, and in the process bill millions to both the businesses and the governments they represent. At posh locales around the globe, members of The Club meet to swap strategies and drum up potential clients, some of which are household names, such as ExxonMobil or Eli Lilly, but many more of which are much lower profile. In specialty publications, the lawyers suggest novel ways to use ISDS as leverage against governments. It’s a sort of sophisticated, international version of the plaintiff’s attorney TV ad or billboard: Has your business been harmed by an increase in mining royalties in Mali? Our experienced team of lawyers may be able to help.

A few of their ideas: Sue Libya for failing to protect an oil facility during a civil war. Sue Spain for reducing solar energy incentives as a severe recession forced the government to make budget cuts. Sue India for allowing a generic drug company to make a cheaper version of a cancer drug.

In a little-noticed 2014 dissent, US Chief Justice John Roberts warned that ISDS arbitration panels hold the alarming power to review a nation’s laws and “effectively annul the authoritative acts of its legislature, executive, and judiciary.” ISDS arbitrators, he continued, “can meet literally anywhere in the world” and “sit in judgment” on a nation’s “sovereign acts.”

Shacks line the wall outside a closed-down battery factory in El Salvador.

Juan Carlos for BuzzFeed News

That fate has not yet befallen the United States — but largely because of sheer luck, former government lawyers said. In theory, ISDS arbitrators must follow the rules laid down in trade pacts. But in practice, they have interpreted the vague language of many treaties as enshrining broad, unwritten rights far beyond protections against property seizures and blatant discrimination — even finding, in one case, a right to a “reasonable rate of return.”

Some entrepreneurial lawyers scout for ways to make money from ISDS. Selvyn Seidel, an attorney who represented clients in ISDS suits, now runs a specialty firm, one that finds investors willing to fund promising suits for a cut of the eventual award. Some lawyers, he said, monitor governments around the world in search of proposed laws and regulations that might spark objections from foreign companies. “You know it’s coming down the road,” he said, “so, in that year before it’s actually changed, you can line up the right claimants and the right law firms to bring a number of cases.”

The US officials who negotiated the Trans-Pacific Partnership have argued that it contains new ISDS safeguards, including opening up hearings and legal filings to the public. The changes, however, have loopholes, and lawyers at some big firms are already advising clients how they might use the new deal to their benefit.

Opposition to ISDS is spreading across the political spectrum, with groups on the left and right attacking the system. Around the world, a growing number of countries are pushing for reforms or pulling out entirely. But most of the alarm has been focused on the potential use of ISDS by corporations to roll back public-interest laws, such as those banning the use of hazardous chemicals or raising the minimum wage. The system’s usefulness as a shield for the criminal and the corrupt has remained virtually unknown.

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.

Among them: a bank in Cyprus that the US government accused of financing terrorism and organized crime, an oil company executive accused of embezzling millions from the impoverished African nation of Burundi, and the Russian oligarch known as “the Kremlin’s banker.”

Some are at the center of notorious scandals, from the billionaire accused of orchestrating a massive Ponzi scheme in Mauritius to multiple telecommunications tycoons charged in the ever-widening “2G scam” in India, which made it into Time magazine’s top 10 abuses of power, alongside Watergate. The companies or executives involved in these cases either denied wrongdoing or did not respond to requests for comment.

Most of the 35-plus cases are still ongoing. But in at least eight of the cases, bringing an ISDS claim got results for the accused wrongdoers, including a multimillion-dollar award, a dropped criminal investigation, and dropped criminal charges. In another, the tribunal has directed the government to halt a criminal case while the arbitration is pending.

“You have a lot of scuzzy sort-of thieves for whom this is a way to hit the jackpot.”

Of course, there are governments that don’t have clean hands themselves, and some claims by businesses have been justified. The legal systems of some countries are flagrantly unfair or riddled with corruption. Moreover, authoritarian or kleptocratic regimes sometimes do use their justice systems as political weapons. For example, arbitrators ordered Russia to pay compensation after finding that Vladimir Putin and his administration had used criminal and tax proceedings to destroy his political rival Mikhail Khodorkovsky’s oil company.

Lawyers say that some governments, faced with a legitimate ISDS claim, will even trump up a criminal charge to deflect from their own wrongdoing. For example, arbitrators found there was evidence suggesting that Bolivia had launched a fraud case against mining-company executives as a ploy to get the company’s ISDS claim thrown out.

But even some members of The Club said they were concerned by how often credible allegations of criminality arise. Many ISDS lawyers say that the system helps promote the rule of law around the world. If ISDS is seen as protecting criminals, they fear, it could delegitimize a system that is working well for many others.

One lawyer who regularly represents governments said he’s seen evidence of corporate criminality that he “couldn’t believe.” Speaking on the condition that he not be named because he’s currently handling ISDS cases, he said, “You have a lot of scuzzy sort-of thieves for whom this is a way to hit the jackpot.”

Dita Alangkara / AP

Even in the world of ostentatious opulence that Dubai real estate moguls inhabit, Hussain Sajwani and his company, Damac Properties, stand out. His promotions are gaudy — buy an apartment, get a Jaguar. He’s partnered with Donald Trump on a golf course for a Damac resort in Dubai. He’s raffled off a private jet and a private Caribbean island.

In the midst of his meteoric rise, he began looking beyond the oil-rich United Arab Emirates and, in 2006, ventured into an attractive new market: Hosni Mubarak’s Egypt. Top officials from the notoriously corrupt regime, including the prime minister, traveled to Dubai and cemented the new partnership with a signing ceremony for a splashy deal.

Hosni Mubarak

Danilo Agutoli for BuzzFeed News

Within five years, in the wake of the historic 2011 revolution that ousted Mubarak, an Egyptian court would find Sajwani and the by-then former tourism minster guilty of working in cahoots on a land deal that would fleece the Egyptian people, sentencing both to five years in prison.

Egypt was in tumult, with the military controlling the government, frequent protests still roiling the streets, and the Muslim Brotherhood jockeying for what would become its electoral victory. Criminal trials in Egypt were often still gravely flawed, and corporate lawyers in Cairo said the military government was pursuing corruption trials to placate protesters and settle political scores. But anticorruption fervor had helped fuel the occupation of Tahrir Square, and to some activists and ordinary Egyptians, this once unthinkable verdict signaled that the elites who had enriched themselves through sweetheart deals with the regime might no longer be above the law.

But then some of those elites wielded a new weapon: ISDS. One of the first to do so was Sajwani.

The son of a disciplinarian shop owner in Dubai, Sajwani had rebelled against his conservative father and eventually found his way to the United States, where he earned a bachelor’s degree in economics from the University of Washington. Back in the United Arab Emirates, he sold timeshares and started a catering company.

By 2002, he’d determined the real money was in real estate, and he founded Damac Properties. The company quickly asserted itself as a major player in the booming Dubai property market and began expanding abroad.