CORRECTED - UPDATE 2-Brazil beef giant JBS under police probe

(Corrects to show that Margen, not JBS, filed for bankruptcy protection, paragraph 11)

SAO PAULO, June 16 (Reuters) - The world's biggest beef processor JBS JBSS3.SA is under investigation by Brazil's federal prosecutor's office in a widespread corruption case that has targeted several companies in the beef industry.

Brazil is the world’s largest producer and exporter of beef, and its cattle industry has come under increasing criticism from environmentalists at home and abroad for its role in the deforestation of the Amazon rainforest.

Other meatpackers and leather companies including Bihl, Margen and Curtume Nossa Senhora Aparecida are also part of the investigation into the bribing of public officials, racketeering, corruption, fraud and collusion, a representative at the federal prosecutor’s office told Reuters on Tuesday.

In an statement released earlier on Tuesday, the prosecutor said several people from the beef, dairy and leather industries were being rounded up and held in police custody in a broad-reaching sting operation spanning several states.

In addition to the companies in the beef sector entangled in the investigation that began about a year ago and police are calling “operation slaughter”, the prosecutor’s office said that officials at the Banco da Amazonia bank, as well as local and federal representatives of several governmental offices and ministries are involved.

Public prosecutor Reginaldo Trindade, who is leading the investigation, said companies under investigation had paid inspectors and public servants to approve projects and clear products such as meats for consumption.

He added that JBS’s operations in Porto Velho in the Amazon state of Rondonia was under investigation for arranging for inspectors turn a blind eye to their allegedly adding water to meats to boost weights.

“The involvement (of the companies) was their having their interests favored directly or indirectly by inspectors” with the agriculture ministry, Trindade told Reuters.

JBS spokeswoman Vanessa Esteves told Reuters by e-mail that the company’s legal department was looking into the investigation and would comment on the case after it had a better understanding of prosecutors’ concerns.

The company embarked on an international buying spree in recent years, which won it control of rivals in Argentina, Europe, Australia and the United States, including U.S. food processors Swift and Smithfield SFD.N.

Margen began to have financial problems as the global credit crunch worsened since October, and eventually filed for bankruptcy protection, or the local equivalent to the U.S. Chapter 11. Several of its plants are idle.

Federal police reported that 22 people had been arrested by Tuesday evening in an operations involving 250 police officers. (Reporting by Camila Moreira; writing by Reese Ewing; Editing by Marguerita Choy)