Who’s Funding that Lawsuit? Implications for Lawfare

Imagine there’s an American company about to win a hotly contested tender to build telecommunications infrastructure in an African country. Suddenly, the firm is hit by a class-action lawsuit back home alleging malfeasance and backdoors in its hardware. After months of legal wrangling, the lawsuit is dismissed. But the damage is done: the tender has long since been awarded to a government-controlled enterprise from a competitor state. 

The courts have always been thought of as a key line of defense against malign foreign influence campaigns and espionage. However, the rise of phenomena like third-party litigation funding threaten to flip this equation, allowing foreign actors to weaponize the legal system for their own influence objectives. 

TPLF is the funding of lawsuits by third parties with no direct connection to a dispute. In these suits, the often-substantial costs of litigation are borne not by the party that claims harm and files the suit but by someone else. With this funding comes the spectre of influence. By allowing unrelated (and usually unregulated) third parties to have a stake in legal proceedings, TPLF adds a new dimension to the foreign influence debate. It offers an opaque and protected channel for funders, backed by foreign state and non-state actors, to initiate, control, or influence proceedings of strategic interest. 

Particularly when costs are underwritten, parties need not play (i.e., sue) to win. Deployed strategically, litigation can be used for other purposes such as to delay policy or commercial processes, harass, embarrass, or to obtain confidential information. Expecting such abuses, most legal systems contain built-in safeguards against malicious or vexatious litigation. However, these were never formulated to account for sophisticated campaigns emanating from abroad. 

While global consensus on how TPLF should be regulated is still emerging, one study estimated a 414 percent rise in U.S. litigation funding between 2013 and 2017. This trend has been reflected globally, with the TPLF sector estimated to be worth $4.1 billion by 2027, while also expanding to new realms such as arbitration. As a result, even as stakeholders debate the pros and cons of TPLF, there is an urgent need for national security perspectives to form a greater part of the discourse.

For instance, while divisive debates on TPLF transparency continue, and courts have begun to mandate disclosures, no consistent practice has emerged. Many disclosure requirements are limited in scope and only focus on disclosures around the existence of TPLF arrangements and the identities of funders. As funders can be private entities, there is often no visibility one level up: of the funder’s own investors or patrons. These could easily be foreign state actors or – more likely – state-controlled entities and private sector conduits.

In addition, many attempts at transparency (including proposed legislation) are premised to apply only where funders have a right to receive a share of the damages awarded by a court. Such a requirement would not apply to a funder not looking to receive financial reward in return for monetary or strategic assistance. If a foreign state underwrites a lawsuit with no expectation of a return, transparency requirements would be unlikely to be triggered. This opacity is compounded as it is unclear if such foreign-origin TPLF would trigger other reporting requirements – such as under the Foreign Agents Registration Act in the United States. 

In many jurisdictions, TPLF operates in a regulatory vacuum. While legal best practice and TPLF self-regulatory materials counsel against funders exercising control over the conduct of litigation, these are neither binding nor universal. 

Overall, the haphazard manner in which guidance has emerged, coupled with lack of reference to strategic threats suggests that there has been insufficient discourse around TPLF from national security perspectives. This is due, in part, to rules around the conduct of legal proceedings traditionally being the realm of the judiciary and professional regulators at the state level. But the risks from TPLF require broader consideration – including as to whether it may be more effective to treat TPLF, in certain defined cases involving a foreign connection, as investment transactions or foreign lobbying. This would open the door to tweaking existing frameworks such as FARA to bring greater transparency around TPLF as far as strategically sensitive subjects are concerned. 

Tangible progress may therefore require statutory intervention or, at very least, regulatory guidance mandating better due diligence, reporting, or record-keeping requirements for legal representatives – likely the optimal point of regulation.

At the same time, it is important to acknowledge that regulation in the sphere involves a chicken-and-egg problem. Without transparency to unmask foreign influence through legal channels, it is difficult to determine if the latter actually occurs. However, when states and private actors acknowledge the overt use of legal systems to project influence and achieve strategic objectives, it is not a stretch to assume that the same channel is also resorted to more covertly. 

Only deeper study, discourse, and evidence-gathering around the threats to national security from TPLF will lead to meaningful consideration of the risks it poses – and whether they rise to justifying policy intervention. If nothing else, such inquiry can also have the effect of improving overall trust in TPLF. But to disregard it leaves our legal systems vulnerable and ignores what could become, or already is, a critical battlefield in the fight against malign foreign influence.

Tarun Krishnakumar is a consultant researcher with the Foreign Influence Transparency Initiative at the Center for International Policy. He is an attorney licensed to practice law in the United States and abroad. All views expressed are personal.