IFC, the private sector arm of the World Bank Group, has helped Ukraine establish a new law on inspections of business activities. The president of Ukraine recently signed the law, which was adopted by the country’s parliament in May 2007.

The law, which was drafted with assistance from IFC, will streamline the local inspections system and significantly decrease the burden on small and medium enterprises.

A 2006 IFC survey of SMEs in Ukraine revealed that the inspections process is one of the most burdensome administrative procedures for private enterprises. State agencies inspect about 95% of all enterprises annually. In 2006, businesses spent an estimated 189mn Ukrainian hrivnyas ($37mn) on staff costs to deal with inspectors and control agencies. To help reduce this burden, the new law establishes principles of conduct for inspections by state authorities. It specifies the maximum duration of inspections, determines a clear procedure for conducting site visits, and requires implementation of a risk-based system, which links the frequency of inspections to the level of risk a firm’s operations pose to society and the environment.

The law also foresees the compulsory use of checklists, which outline requirements for inspections. Businesses will be able to access these checklists beforehand to help improve their compliance with regulatory requirements.

The law will also limit unplanned inspections. Previously, more than 50 agencies could conduct inspections without prior notification, sometimes causing significant problems for businesses. Entrepreneurs now have the right to involve third parties during inspections and to make video and audio recordings of this process.

IFC will help the government implement the law by working with key pilot inspectorates to develop and introduce checklists. IFC will also inform Entrepreneurs about their rights and responsibilities as established by the law.

Ksenia Lyapina, a member of Ukraine’s parliament, says, “The law aims to protect entrepreneurs. It should help improve Ukraine’s business-enabling environment, allowing the country to reach a European  standard. On behalf of our committee, I would like to express my gratitude to IFC for the significant impact of this law, as well as for the introduction of best practices reflected in the law.”

IFC’s Ukraine Business Enabling Environment Project helped draft and promote the law on inspections in cooperation with a working group headed by Ukraine’s Parliamentary Committee on Industrial and Regulatory Policies and Entrepreneurship Policy. The project is funded by the European  Commission.