Itau Unibanco (ITUB) Faces Tax Probe From Brazilian Police

Brazil’s federal police have initiated a raid against the Sao Paulo-based financial products and services provider Itau Unibanco Holding S.A.’s (NYSE:ITUB) as part of the widening probe into alleged bribery of tax officials.

The investigating officials executed 34 search warrants and took testimony from 13 people in the states of Sao Paulo, Rio de Janeiro and Pernambuco. The raids are in connection with the so-called “Operation Zealot”, which investigates the alleged involvement of companies and banks in the bribing of Brazilian tax authorities to avoid huge fines by reducing or waiving tax payments. Notably, the police did not name the targeted banking institution. However, the largest bank of Latin America, by market value, confirmed being the target.

The probe centers on tax disputes involving the local unit of FleetBoston Corp. (formerly known as BankBoston) which Itau Unibanco had acquired from Bank of America Corp. (NYSE:BAC) in 2006. The investigating officials mentioned that they have evidence of conspiracy between a member of Brazil’s tax-appeal council CARF and Itau Unibanco regarding manipulation of tax disputes during 2006–2015. Further, the officials noted that this manipulation of administrative procedures was done atleast three times during the mentioned period.

Per a statement by Itau Unibanco, the acquisition did not involve transfer of tax cases from FleetBoston and that it is the responsibility of BofA to resolve the matter. Further, the company’s representative stated, “Itau has had no involvement in the conduct of those businesses, including the hiring of any consultancy firm or lawyers”. On the other hand, BofA stated that it is complying with the Brazilian authorities’ investigation by providing them the required documents.

The investigation stems from a worsening political environment in Brazil, resulting from a large-scale scandal involving several contractors, state-controlled firms and dozens of politicians. This has slowed down the recovery of the Brazilian economy from a two-year recession, along with denting business confidence.

The tax probe had also targeted Itau Unibanco’s peer, including Banco Bradesco S.A. (NYSE:BBD) and Banco Santander (MC:SAN) (Brasil) S.A. (NYSE:BSBR) , whereby both the firms denied the allegations of any wrongdoing.

Itau Unibanco currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The company’s shares gained more that 63% on the NYSE so far this year, significantly outpacing the 2.5% growth of the Zacks categorized Foreign Banks industry.

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