FBI arrests Israeli billionaire's agent over bribery cover-up claim in battle over $10 billion iron ore mountain

Frenchman is accused destroying evidence of how an Israeli billionaire gained control of a mountain rich in iron ore in Guinea

A battle over one of the world's richest mineral deposits has taken a dramatic turn after the FBI announced the arrest of a representative of the billionaire businessman who had acquired it in deal that raised eyebrows, even within the buccaneering world of African mining.

The arrest follows years of bitter claim and counter-claim over Simandou, a mountain in the remote interior of the impoverished west African country of Guinea that is so laden with iron ore that its exploitation rights are valued at around $10bn.

Beny Steinmetz, one of the world's wealthiest men, acquired the rights to extract half the ore at Simandou by pledging to invest just $165m to develop a mine at the mountain. Shortly afterwards, he sold half of his stake for £2.5bn. It was hailed as the most stunning private mining deal for decades: the world's finest untapped iron ore deposit, one worth billions of dollars, had been snapped up for a song.

After the wind of democratic change swept through Guinea, however – and after the US justice department decided to mount an investigation into circumstances in which the glittering prize at Simandou changed hands – that deal was appearing to look distinctly less attractive.

On Sunday evening, Frederic Cilins, an agent for Steinmetz's company, was arrested in Jacksonville, Florida, after federal agents had covertly recorded a series of meetings. The recording shows, it is alleged, that Cilins plotted the destruction of documents which it is claimed could have shown the Simandou exploitation rights were acquired after millions of dollars were paid in bribes to Guinea government officials.

Unknown to either Steinmetz or Cilins, the FBI launched an investigation in January into whether payments allegedly made on behalf of Beny Steinmetz Group Resources, the Guernsey-registered mining arm of the tycoon's business empire that acquired the rights, were in breach of the US Foreign Corrupt Practices Act.

According to a statement by an FBI special agent that was filed at the southern district court of New York yesterday, Cilins had been under surveillance during four meetings at Jacksonville airport with an individual who, it is claimed, had agreed to help the agency mount a sting operation. Sources familiar with the investigation say that this person was Mamadie Toure, the widow of Lansana Conté, the dictator who ruled Guinea for 24 years until his death in 2008.

Cilins, a 50-year-old Frenchman, was arrested by FBI agents shortly after the final meeting. He appeared in court on Monday facing three charges: interfering with a witness, obstructing a federal criminal investigation and conspiring to destroy evidence in a federal criminal investigation. The charges carry a penalty of up to 20 years' imprisonment.

According to the FBI agent's filed statement – which did not name BSG Resources – Cilins had in the past offered to pay $12m in bribes in order to influence the award of mining concessions. He had also paid out several million dollars, and had called the meetings in order to arrange for the destruction of documents concerning bribe payments and mining concessions.

"Cilins repeated the word 'urgently' several times," the statement claims. "Cilins told the CW [co-operating witness] that Cilins was asked to be present in person to witness the documents being burned in order to guarantee that nothing is left behind."

The filed complaint states that a federal grand jury is investigating whether an unnamed mining company and its affiliates – on whose behalf it claims Cilins has been working – allegedly transferred into the United States bribery money for the valuable mining concessions in Simandou.

After Cilins was remanded in custody, Mythili Raman, the US acting assistant attorney general, said: "The justice department is committed to rooting out foreign bribery, and we will not tolerate criminal attempts to thwart our efforts." BSG Resources confirmed that Cilins had worked for the company. Asked about the arrest and the bribery allegations, a spokesman declined to comment.

While Cilins was flying to Jacksonville last week, Steinmetz was embarking on litigation at the high court in London, accusing Mark Malloch-Brown, the former Foreign and Commonwealth Office minister and deputy secretary general of the United Nations, of being involved in a smear campaign against BSG Resources. Malloch-Brown and FTI Consulting, the city PR firm he works for, deny the allegation.

Guinea, a former French colony, has almost half of the world's bauxite reserves and significant reserves of iron ore, gold and diamond reserves, but the majority of its 11 million people live in poverty as a result of years of corruption that has deterred many would-be investors.

The rights to extract iron ore from Simandou had been held by Rio Tinto until late 2008 when Conté stripped the Anglo-Australian mining giant of half its stake. Apparently, the president signed the necessary paperwork while on his deathbed, one of the final acts of his dictatorial government. BSG Resources then acquired those rights, agreeing in return to invest $165m to develop what it described as "a world-class integrated mining project".

In April 2010, Steinmetz negotiated to sell half his company's stake – a quarter of the mountain's ore – to Vale of Brazil, the world's biggest iron ore miner. BSG Resources and Vale formed a joint venture company called VBG which would produce around 2m tons of iron ore a year.

When Vale agreed to pay $2.5bn, one veteran of African mining was quoted in the financial press as saying that Steinmetz had hit "the jackpot". The 57-year-old Israeli tycoon was estimated by Forbes magazine to have a net worth of $4bn. But while Steinmetz's corporation defended the deal in which it acquired the rights, others were highly critical: the African telecoms billionaire Mo Ibrahim, for example, asked publicly: "Are the Guineans who did that deal idiots, or criminals, or both?"

When Guinea's first democratic government was elected later in 2010, Alpha Condé, the new president, began scrutinising the terms of several mining concessions granted under Conté's rule. He focused firmly on the Simandou deal.

With the assistance of one of his advisers, the wealthy investor and philanthropist George Soros, the new president assembled a team of investigators who, it is understood, have unearthed a number of documents that shed light on the way in which the Simandou deal had been sealed.

There were reports that a number of luxury gifts and payments had been made to relatives and associates of Lansana Conté, and to senior officials in the short-lived military dictatorship that followed his death. They included claims that a gold-and-diamond encrusted miniature Formula One car was given to a former government minister. BSG Resources responded to this allegation by saying that the car was worth no more than $2,000, and had been given to the mining ministry, not an individual, in a ceremony that was held in public.

Claims that Conté had been given a diamond-studded gold watch, and that a substantial commission – as much as $2.5m – had been made to his wife, Mamadie Toure, were flatly denied.

The development of the mine stalled after Conde's election. During talks between BSG Resources, Vale and the government of Guinea – which were held in London last month – it became clear that the Steinmetz group's control of the Simandou rights were under threat, a situation that the company described as "bizarre".

During the talks, the president of BSG Resources was barred from Guinea, and Vale told its business partner that it would not be paying the $2bn that was outstanding on the $2.5bn deal.

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