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By Rogerio Jelmayer and Luciana Magalhaes
SÃO PAULO -- Brazilian authorities are investigating some of the world's biggest meatpacking companies for allegedly bribing food-sanitation inspectors to approve sales to domestic and foreign buyers of meats that might otherwise have failed to pass muster.
Among the dozens of firms targeted are JBS SA and BRF SA, which both have substantial operations outside Brazil. JBS, the world's leading meatpacking company, owns Swift Foods and a majority share of Pilgrim's, both familiar U.S. brands. BRF is one of the world's biggest chicken exporters.
"[The firms under investigation] didn't care about the quality of the meat or food" they sold, said a Federal Police official, Mauricio Moscardi Grillo. "They didn't care at all about what they were selling to consumers."
Shares of JBS plunged 10.6% on Friday, and shares of BRF were down 7.6%. Brazil's benchmark Ibovespa stocks index was down 2.4% on the day.
The investigation could threaten a planned initial public offer by JBS for its international operations, and could cause problems for a possible sale by BRF of a stake in one of its units as well, said Shin Lai, an investment strategist at São Paulo-based research firm Upside Investor. JBS announced in December a reorganization plan that includes an IPO in the U.S. of shares in its international businesses.
An inspector-veterinarian employed by JBS at one of its plants was allegedly involved in the scheme, documents provided by judicial authorities show. Police said an executive linked to JBS was also under investigation.
JBS, with units on five continents, said it and its units "rigidly follow" all regulations regarding health inspection of its products and supports all efforts aimed at punishing violations.
BRF said that it meets all regulations and that its products pose no risk to consumers in Brazil or abroad. The company added it was cooperating with authorities on the probe.
An Agriculture Ministry official said the ministry was still investigating how much of the affected meat and meat derivatives were exported, noting most of it was probably sold in the Brazilian market.
The official, Eumar Novacki, said participants in the scheme falsified sanitation certifications for beef and chicken as well as for hot dogs, bologna, animal feed and pet food.
"The crime against the Brazilian people is grave," said Mr. Novacki, adding the Brazilian government was also concerned about the impact on the country's image abroad.
"We're big players in the world market, and consumers can seek products from our competitors," he said. "We're worried and we're taking steps" to maintain confidence in Brazilian products.
When reporters at an often combative press conference asked repeatedly how consumers could avoid tainted food, Mr. Novacki said the government didn't have yet enough information to say.
Brazil is second only to the U.S. in beef and poultry production, according to U.S. Department of Agriculture data, and is the world's largest exporter of chicken meat, shipping more than 4 million metric tons overseas in 2016.
Brazil's meat sector relies heavily on exports, shipping 30% of its poultry meat and about one-fifth of its beef abroad, especially to China. Any questions raised over the safety and quality of Brazilian meat exports could give an edge to U.S.-produced meat in markets where the two countries compete, such as Hong Kong, the Middle East and Chile.
Relatively little meat produced in Brazil is imported by the U.S. About 37,000 metric tons of fresh beef were imported from Brazil in 2016, when the U.S. consumed about 11.7 million metric tons, according to the USDA. While Brazil's meat exports to the U.S. have more than tripled over the prior five years, they remain below the levels of most of the preceding decade. The U.S. typically imports no chicken and negligible amounts of pork from Brazil.
A USDA spokeswoman said the agency was in contact with Brazilian authorities and was monitoring the situation. Federal officials have safeguards in place to protect the U.S. food supply through inspections of all imports, she said. "We can ensure the American food supply is safe," she said.
The European Commission, the EU's executive arm, is aware of the investigation in Brazil and has requested clarifications from Brazilian authorities, an EU representative said Friday. The Brazilian delegation to the bloc has been providing information to the EU, the official added.
"As you can imagine, events are currently unfolding and more news will probably emerge in the coming hours [and] days," the EU representative said.
Brazil's investigation targeting meat producers coincided with the three-year anniversary of the sprawling anticorruption investigation known as Operation Car Wash, which has uncovered a massive scheme involving some of the biggest companies in Brazil and several high-profile politicians.
Friday's operation was one of the biggest on record in Brazil, authorities said. Police said 1,100 officers acting in six Brazilian states and the Federal District were part of the operation, executing 38 arrest warrants and court orders to collect evidence and seize assets.
The police spokesman, Mr. Grillo, said Friday that some of the bribes went to political parties, but that police still don't know exactly how much. He didn't provide any names of politicians or parties.
Friday's investigation isn't the first legal controversy involving JBS. Earlier this year, the police launched an investigation into suspected irregular loans made by state-owned lender Caixa Econômica Federal, saying JBS possibly benefited from the scheme, according to court documents released then. JBS has denied any wrongdoing in the case.
J&F Investimentos, the family holding company that controls JBS, also allegedly benefited from the scheme. J&F is already under other investigation for allegedly inflating the value of a company it controls to defraud the pension funds of two big state-controlled companies. JBS Chairman Joesley Batista is among dozens of people being investigated. JBS and J&F have denied any wrongdoing by the company or Mr. Batista.
Many investors say they are growing wary of the company.
"Investors don't have any confidence" in JBS, said Mr. Lai of Upside Investor. "Where's their credibility? The odds of them holding a successful IPO have fallen drastically."
--Jeffrey T. Lewis in São Paulo, Jacob Bunge and Heather Haddon in Chicago and Emre Peker in Brussels contributed to this article.
Write to Rogerio Jelmayer at firstname.lastname@example.org and Luciana Magalhaes at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
March 18, 2017 02:47 ET (06:47 GMT)
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