BSGR Investigated for Corruption in Guinea Iron Ore Deal

* Editor's note: This article has been amended to correct certain details and to add a statement from BSGR.

BSGR, a mining conglomerate controlled by Israeli billionaire Beny Steinmetz, is under investigation for the acquisition of mining rights to the Simandou iron ore deposit in Guinea, said to be the biggest in the world.

A multinational team that includes the Guinean government, the French and Swiss police, and the U.S. Federal Bureau of Investigation have been interviewing witnesses and raiding offices over the past few months to uncover evidence.

The prospective mine is named after a hill range in the Nzérékoré region of southeastern Guinea which is surrounded by dense forests some 400 miles (670 kilometers) from the West African coast. Mining analysts say that it could hold $50 billion in resources for the country, which ranks as the eighth poorest in the world.

The original concession was awarded to Rio Tinto, the Anglo-Australian mining giant, in 2006 by Lansana Conté, the dictator who ruled the country for 24 years. Just before he died in late 2008, the concession was transferred to BSGR in circumstances that the government authorities are now probing.

In April 2010, BSGR sold a 51 per cent stake in its mining interests in Guinea for $2.5 billion to Vale, the Brazilian mining giant. Critics pounced upon this sale, noting that BSGR had only spent $160 million on the project, alleging that BSGR was profiting out of resources that should belong to the people of Guinea.

"Looking at the iron ore, the grade is world-class. The quality is world-class. Yet, in so many years, we haven't been able to benefit from any of these tremendous resources." Alpha Condé, the democratically elected president of Guinea and a former Sorbonne professor who lived in exile for decades, told the New Yorker magazine. "How can we be so rich and yet so poor?"

Others were more scathing. "Are the Guineans who did that deal idiots, or criminals, or both?" said Mo Ibrahim, the Sudanese telecom billionaire, at a forum in Dakar.

Earlier this year, Global Witness, an anti-corruption NGO, published details of how bribes were allegedly promised to Mamadie Touré, the fourth wife of Conté, by Pentler Holdings Ltd, an offshore company.

"Given the extreme levels of poverty in Guinea and the international importance of the mining area in question - the iron-rich Simandou mountain range - Global Witness believes full light should be shone on the matter, and is urging BSGR to fully address the allegations," the NGO wrote in a press release.

Beny Steinmetz, who inherited his wealth from his father's Geneva-based diamond business, says that the company did not pay any bribes. "Very strict instructions and guidelines to people on the ground," he told the New Yorker. "We manage our business like the most transparent public company," he said.

"To hear Steinmetz tell it, the former leaders of Guinea were undeserving of the widespread censure they had received. General Conté was 'more honest' than President Condé," writes Patrick Radden Keefe, the New Yorker reporter who authored a 11,500 word story on the controversy in July.

The investigation is beginning to bear fruit - Frederic Cilins, a BSGR agent, was arrested in a sting operation in Florida, after he allegedly offered to pay $5 million to Conté's widow for documents on the original deal. "Cilins attempted to buy evidence he sought to destroy," said FBI Assistant Director-in-Charge George Venizelos. "In effect, he was willing to commit bribery in an effort to cover up a bribery."

Condé is not backing down either. He recently announced that his government intended to wage "a battle to recover our mines which were acquired fraudulently."

* UPDATE: CorpWatch received an email from Ian Middleton, a public relations advisor to BSGR, on October 25 stating the following: "Your repeated allegation that 'BSGR was profiting out of resources that should rightfully belong to the people of Guinea' misrepresents the nature of BSG Resources' involvement in the Simandou iron ore project. What you fail to make clear is that this $2.5bn would only have become payable in full once an exacting and expensive long-term development programme had been delivered. By that stage, Simandou would also have been earning billions for Guinea in royalties and jobs."

"I am surprised that in the course of your article on Guinea, and referring to Alpha Conde, your article failed to mention recent parliamentary elections which are mired in allegations of electoral fraud against the presidential party; the much-reported granting of lucrative export rights to a previously-unregarded British company with one of President Conde's close associates on its Board; or that Rio's venture partner Chalco recently disposed of its stake in Simandou for over $2.0bn without being committed to any development milestones."

• 185 Corruption