Ukraine has long hoped to attract foreign investors and improve the standing of its domestic entrepreneurs.
On Dec. 17, Prime Minister Denys Shmyhal even promised to improve Ukraine’s ranking in the annual Doing Business rating. Ukraine is currently ranked 64th, far behind its neighbors.
But Ukrainian officials remain one of the obstacles to a better business climate, according to a new investigation that led to the ouster of a regional official.
Investigative journalism project Slidstvo.Info discovered that Svitlana Melnychuk, an inspector at the State Labor Service of Ukraine in Dnipropetrovsk Oblast, forged complaints against private entrepreneurs to have a legal basis to inspect and fine their businesses.
Melnychuk was assisted by Serhiy Alekseychenko, a Servant of the People city council member from the city of Novomoskovsk, a town of 70,000 people in Dnipropetrovsk Oblast 450-kilometers southeast of Kyiv. Previously, Alekseychenko had served as deputy mayor of the city.
In the video published by Slidstvo.info, Melnychuk and Alekseychenko write several complaints against businesses using fictitious names. The journalists were able to identify that the businesses that were the targets of fictitious complaints were indeed inspected and were ordered to pay a fine by the Labour Service.
According to documents published on the State Labour Service’s website, the complaints were the primary basis for the inspections.
After the video was published, Melnychuk resigned. She now faces a fine of up to Hr 100,000 ($3,600) or up to 2 years in prison.
Better, not great
Deputy Business Ombudsman Tetyana Korotka told the Kyiv Post that there are numerous complaints on state monitoring agencies filed by businesses of all sizes.
“The integrity of State Labor Service inspectors is questionable,” says Korotka.
She also points out that there are numerous complaints filed against the State Tax Service and regional authorities that, while not having direct authority to fine businesses, have the power to issue permits critical for the businesses survival.
“Under the decentralization law, we have more responsibilities on the local levels, and not always those local authorities are ready for those responsibilities,” says Korotka.
“On the local level there’s a temptation to use authority over small businesses,” she adds. It also concerns local inspectors of national agencies, who have less supervision in remote regions.
According to Korotka, the Business Ombudsman Council receives its vast majority of complaints from businesses situated in Ukraine’s regions. Most notably Kyiv, Kharkiv and Dnipropetrovsk Oblasts.
According to the Business Ombudsman Council, businesses have three main concerns: unscheduled inspections, obstruction of receiving permits and the unbalanced interpretation of normative acts.
Korotka also points out that Ukraine’s Labor Code is obsolete. The Code was adopted in 1972, when Ukraine was ruled by General Secretary Leonid Brezhnev.
“The new Labor Code is stuck in parliament for over eight years,” says Korotka.
However, Korotka says that it goes both ways. Businesses must also be held accountable for breaching legislation.
“Business can protect itself by following the rules,” says Korotka. “The more it follows the existing legislation, the less there are risks of being attacked by authorities,” she adds.
Korotka says that it is rare when authorities harass businesses that are clean, adding that usually corrupt inspectors target businesses that have problems abiding by the law.
Editor’s Note: This report is part of the Investigative Hub project, within which the Kyiv Post monitors investigative reports in the Ukrainian media and brings them to the English-speaking audience, as well as produces original investigative stories. The project is supported by the National Endowment for Democracy.
