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6 October 2014

New rules, old regulators


Author: Oleksandr Yakovenko
Source: International Law Office. – 2014. – 6 October

The environment for doing business in Ukraine still leaves much to be desired. The country's investment climate has seriously deteriorated recently as a consequence of Ukraine's economic slowdown. One of the reasons for the decline in foreign capital inflows into Ukraine and the inhibition of domestic business development is the negative impact of regulatory agencies, which cannot be overestimated.

There are around 80 state control bodies in Ukraine. Often pursuing illicit objectives, regulators consistently conduct unreasonable scheduled and unscheduled inspections of business entities with the intention of imposing various financial penalties, abusing the mechanisms to ban or restrict business operations and prosecuting officials of the investigated enterprise.

On the eve of parliamentary elections, the government set out to intervene in this situation and initiated a number of major legislative changes. On July 31 2014 Parliament introduced amendments to Article 31 of the Law on the State Budget which establish a new procedure and grounds for inspections of business entities by regulatory authorities. In particular, from August 2014 to December 2014, regulators may undertake inspections of enterprises, institutions, organiations and individual entrepreneurs only with prior approval from the Cabinet of Minister through a special ordinance, or at the discretion of the investigated entity itself. However, this innovation does not apply to the State Fiscal Service's procedure for conducting inspections or to instances in which the inspection is court ordered or requested by law enforcement agencies in cases provided for in criminal procedure law. The new provision took effect on August 16 2014.

In Provision 408 (issued on August 13 2014) the Cabinet of Ministers published a list of 61 regulatory agencies that are affected by the changes.

The new procedure will undoubtedly reduce the number of illegal and groundless inspections of businesses and thus help to curb corruption among government authorities. However, these clearly populist legislative changes will be short-lived and will bring few significant improvements to the country's economic climate; nor will they increase Ukraine's attractiveness to foreign investors.



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