Reuters International

By Ana Mano and Guillermo Parra-Bernal

SAO PAULO (Reuters) - Brazilian police investigating alleged bribery of tax officials on Thursday raided Itaú Unibanco Holding SA, the latest bank to be swept up in the widening probe.

Earlier in the day, federal police launched 34 search warrants and took testimony from 13 bank employees in the states of São Paulo, Rio de Janeiro and Pernambuco.

While the police did not name the bank involved in the latest phase of the so-called "Operation Zealot," Itaú, Latin America's largest bank by market value, confirmed that it was the target.

The probe centres on allegations that dozens of companies bribed members of the CARF, a Finance Ministry body that hears appeals on tax disputes, to get favourable rulings that reduced or waived the amounts they owed.

Itaú's preferred shares , most widely traded class of stock, posted their biggest intraday drop in three weeks, shedding as much as 4.3 percent.

The probe is part of a worsening political climate in Brazil, where a larger corruption scandal ensnaring state oil producer Petrobras, its contractors and numerous politicians has hampered business confidence and impeded efforts to recover from a two-year recession.

Apart from Sao Paulo-based Itaú, the tax probe has targeted its peers, including Banco Bradesco SA and a money management firm controlled by billionaire Joseph Safra's Safra Group and Banco Santander Brasil SA. Bradesco and Santander Brasil have denied wrongdoing, while the Safra Group has repeatedly said the accusations lack any basis.

MANIPULATION

In a statement, the police said there is evidence that a CARF councillor and Itaú teamed up with legal and financial advisers to manipulate tax disputes between 2006 and 2015.

The manipulation "of administrative tax processes took place in at least three instances" during that period, the police statement said.

Itaú said the searches related to tax disputes involving the local unit of FleetBoston Corp, which the Brazilian lender bought a decade ago. The wrongdoing was allegedly related to business conducted by BankBoston, as FleetCorp's brand was known.

According to the Itaú statement, its acquisition of the unit did not entail the transfer of tax cases, which it said are the responsibility of Bank of America Corp - the ultimate buyer of FleetBoston. Bank of America's media office in Brazil did not comment.

"Itaú has had no involvement in the conduct of those businesses, including the hiring of any consultancy firm or lawyers," Itau said in the statement.

Operation Zealot has not only implicated some of Brazil's most influential firms, but also some of the nation's foremost power brokers. Luiz Carlos Trabuco, Bradesco's chief executive officer, has been accused alongside three of the bank's main executives.

Brazil's benchmark Bovespa stock index, in which Itaú is the most heavily weighted stock, fell as much as 1.3 percent - the second decline in three sessions.

(Additional reporting by Pedro Fonseca; Editing by Christian Plumb and Dan Grebler)

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 Reuters International