Embraer, BRF Dropped as Targets in Brazilian Tax-Fraud Probe

  • Prosecutor to focus on cases where he says evidence strongest
  • Zelotes investigation seeks to recover about 5 billion reais

The Brazilian federal prosecutor in charge of a probe into systemic tax fraud said he has put aside his investigation -- at least temporarily -- into alleged abuses at planemaker Embraer SA, oil giant Petroleo Brasileiro SA and processed-food producer BRF SA to focus on the cases in which he believes he has solid evidence.

As he refocuses his investigation, federal prosecutor Frederico Paiva said executives from nine companies are likely to face new or additional allegations this year, including Bank Boston, a lender that was owned by Bank of America Corp. before being purchased by Itau Unibanco Holding SA; steelmaker Gerdau SA; MMC Automotores, a representative of Mitsubishi Motors in Brazil; and Brascan, a bank that’s since changed its name. A television-station affiliate, a local cement maker and travel agency are also on the list of companies that allegedly negotiated bribes with government representatives to try to lower tax bills, as well as two other firms that Paiva declined to name.

“I have strong proof and I’m sure about corruption” in the remaining cases, Paiva said in an interview at his office in Brasilia. “I think I’ll get a conviction.”

The prosecutor said that the cases against Embraer, Petrobras and BRF lack sufficient evidence of any wrongdoing, although he may take up the suspended investigations again in 2017.

Gerdau denied any involvement, while Embraer, Bank of America, BRF and MMC Automotores declined to comment. Brascan and Petrobras didn’t respond to requests for comment. Itau’s press office said that the tax matters being probed by prosecutors at Bank Boston were not included in its acquisition of the lender, and therefore Itau isn’t under investigation in the case.

Also dropped from a list of companies singled out in early 2015 are sugar cooperative Copersucar, Ford Motor Co.’s local unit, and BTG Pactual Group, he said. Ford declined to comment, while Copersucar and BTG did not immediately respond to requests for comment.

Paiva said last week that his investigation -- dubbed Zelotes -- had narrowed its scope to less than 20 companies from as many as 70 when the first raids were carried out a little more than a year ago, citing a lack of evidence and resources. The refocused investigation is now seeking to recover about 5 billion reais ($1.5 billion) in dodged taxes, plus fines, down from an original estimate of 19 billion reais. It marks a blow in an investigation that has been overshadowed by the sweeping corruption probe at state-run Petrobras, builders and key politicians.

Zelotes had gained some momentum in recent months after targeting members of Brazil’s business elite for allegedly having bribed or trying to negotiate payments to officials on the nation’s tax board in order to evade levies. Bradesco Chief Executive Officer Luiz Carlos Trabuco Cappi was accused of wrongdoing in May, followed by allegations last week against two more of the bank’s executives. Police have also accused more than a dozen people of wrongdoing at Gerdau, including CEO Andre Gerdau, as well as billionaire Joseph Safra’s Grupo Safra, which will have a hearing in court in October, Paiva said. Safra and Bradesco have denied wrongdoing by their executives.

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