Imagine you’re in a lawsuit but unbeknownst to you, a hedge fund halfway around the world is calling the shots for the plaintiffs. You offer a reasonable settlement. The plaintiffs seem to be satisfied but then are forced to reject it because a litigation funder - maybe a foreign government’s sovereign wealth fund - told them to do so. If that sounds far-fetched, then you should know that it is happening right now in courtrooms across America.
Third-party litigation funding (TPLF) has quietly grown into a multi-billion-dollar industry. Here’s how it works: outside investors, including foreign governments and sovereign wealth funds, secretly bankroll lawsuits in exchange for a cut of any winnings. And the kicker is most people may not even know it’s happening.
This isn’t just about money changing hands behind closed doors. When anonymous investors control the purse strings, they can, and often do, control the case. They can push for higher settlements, drag out proceedings, or make decisions based on profit margins rather than what’s in the best interest of the parties. It’s like having a puppet master pulling the strings on something the parties should be deciding.
The good news is there are two straightforward fixes on the table.
First, let’s turn on the lights. The Litigation Transparency Act (H.R. 1109) would require outside entities with a financial investment in federal cases to identify themselves. If a third party is getting paid when a case settles, everyone involved deserves to know who they are and what influence they have over the case. This is about making sure everyone can see who’s sitting at the table and who’s calling the shots.
Second, let’s make sure we know what foreign entities are funding the litigation, and let’s keep foreign governments out of our courtrooms. The Protecting Our Courts from Foreign Manipulation Act (H.R. 2675) draws two clear lines: there has to be disclosure of all foreign entities that are funding litigation in U.S. courts, and no foreign states or their sovereign wealth funds can finance lawsuits in our courts, period. Allowing foreign governments to weaponize our legal system against American businesses is not only unfair, but ultimately a national security risk. They could use litigation to fish for trade secrets, tie down critical industries in litigation, or simply make it more burdensome and expensive for American companies to do business.
Critics say that transparency requirements might scare off funding or create unfair burdens. But here’s the thing: legitimate investors have nothing to hide. Plaintiffs deserve to know if their case is being influenced by someone whose main interest is turning a profit, not seeking justice. And defendants deserve to know if a non-party is dragging out the case, rejecting reasonable settlement offers, or using litigation for ulterior motives. Litigation funding transparency doesn’t kill legitimate lawsuits; it just makes sure everyone in the case knows who is betting on the litigation and calling the shots.
These reforms aren’t radical. They’re common sense. Judges need to know who’s really driving cases in their courtrooms. The Department of Justice needs visibility into potential foreign manipulation. Businesses need to know who they’re really negotiating with and who could have access to their intellectual property and other sensitive information. And plaintiffs themselves need to know if funding is secretly involved in their own case so they can maintain control over it.
Our courts exist to deliver justice, not to serve as casinos for anonymous financiers or as tools for shadowy foreign governments. By passing both bills, Congress can begin the process to help ensure our legal system remains what it was meant to be: a level playing field where cases are decided on their merits, not by secret third parties who are ultimately looking to turn a profit.
The choice is simple: We can either shine a light on shadowy money in our courts or continue letting unknown players manipulate the scales of justice. For the sake of fairness, security, and the integrity of our legal system, it’s time to choose transparency and common-sense reforms.
Stephen Waguespack is the President of the U.S. Chamber of Commerce’s Institute for Legal Reform
