We Must Protect American Courtrooms From Foreign Interference

Newsweek

4 days ago

In most American courtrooms today, a party in court could be financed by foreign interests (and other unrelated third parties) without the other party ever knowing it. This alternate funder may be an investor hoping for uncorrelated returns, a wealthy donor with personal or business interests in the case, or an affiliate of an adversarial nation seeking to undermine U.S. competitiveness.
The third-party litigation funding industry operates in the Wild West. Any outside group can pay the bills for a party in a legal dispute. They do this often in exchange for a percentage of an eventual settlement. Absent a handful of states that have passed disclosure laws affecting their own state court systems, the vast majority of state and federal courts do not require parties to disclose who's paying their legal costs—not to other parties and not even to the presiding judge.
A stone sign for the United States Court House in downtown Los Angeles, Calif. is pictured.
A stone sign for the United States Court House in downtown Los Angeles, Calif. is pictured.
Getty Images
But disclosure is critical and not just for transparency's sake. Incentives matter in the courtroom. The American civil litigation system is premised on fairness, impartiality, and the pursuit of justice. If a party's funders have hidden motives that stray from the desire to fairly resolve a dispute, trust in the system is put at risk.
Foreign sources of litigation funding introduce a whole new set of perverse incentives. A foreign funder may finance a case in order to gain access to sensitive intellectual property or even to evade sanctions that prohibit transactions or investments in U.S. capital markets. Also, since litigation funders have their own monetary and non-monetary goals, the funder may push its client to demand steeper settlement terms than the client would otherwise consider.
These are not hypothetical situations. In 2024, Bloomberg Law reported that a group of sanctioned Russian billionaires created an investment fund to back bankruptcy lawsuits in New York and London thus allowing the oligarchs to steer (launder) tens of millions into western financial institutions.
In another instance, China-based technology firm PurpleVine financed several intellectual property lawsuits against Samsung. This was discovered by a lone overseeing judge in Delaware who luckily requires litigation financing disclosure in his courtroom. Had the case not crossed his desk, the defendants may never have known that their case was hardly a mere legal challenge but, in actuality, a case with national security importance.
Foreign donors may also fund lawsuits that advance their personal agendas. Last year, Foreign Agents Registration Act (FARA) filings revealed that an Australian mining billionaire was paying the legal bills for a coalition of environmental nonprofits in their lawsuit against ExxonMobil. The billionaire, Andrew Forrest, runs a mining empire that he aims to convert into a clean-energy provider—demonstrating both ideological and anticompetitive reasons to target an American oil major that he would not otherwise have standing to sue. This backdoor litigation is getting foreign companies and even foreign governments into American courtrooms they otherwise wouldn't be able to access.
Since the third-party litigation funding industry is entirely unregulated, each of these examples only came to light by accident: strong investigative reporting; a lone judge's standing transparency order; and a buried FARA filing. But in each instance, the discovery of foreign funding changed both public perception and legal strategy. Routine civil suits became vehicles for money laundering, corporate espionage, and personal grievance.
Unregulated third-party litigation financing is a crucial vulnerability for American competitiveness and national security. In order to secure a just and fair civil justice system, it's only common sense that parties should know who they're up against.
We must act quickly as this "hidden party" industry is growing at a pace stressing the non-existent regulatory regime. One estimate values the global market at $17.5 billion in 2025, and it is forecasted to grow to $67.2 billion by 2037. Naturally, it's also becoming more complex. Opportunistic actors are developing secondary markets—a "stock exchange for lawsuits"—which, if left unregulated as well, will only create new avenues for foreign actors to distort the civil justice system and surreptitiously move capital.
Regulators can be certain that the Chinese Communist Party (CCP) and other adversarial nations have taken notice of this influx of cash into the industry. The CCP may be responsible for a significant part of this cash flow, but we cannot be sure. Under the current system, neither national security officials nor legal professionals have any way to discern the source of billions of dollars propping up civil suits from behind the curtain.
A number of bills in state legislatures and in Congress have been introduced to require disclosure of any third-party litigation financing—of foreign funding in particular. This is a welcome development. Lawmakers in Washington and in statehouses across the country should move with alacrity and act on this issue before American companies, our justice system, and our capital markets are subjected to further foreign meddling.
Former Representative Michael Patrick Flanagan (R-Ill.) previously represented the 5th District of Illinois in the U.S. House of Representatives and sat on the Committee on the Judiciary. An attorney, he previously served in the U.S. Army and retired at the rank of captain.
The views expressed in this article are the writer's own.