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.
