RIO Rio Tinto Limited

By Scott Patterson and Rory Jones 

Israeli diamond magnate Beny Steinmetz was arrested Monday on suspicion of bribing government officials in Guinea, Israeli authorities said, widening the fallout from a long-running scandal involving one of the world's richest iron-ore deposits.

The move is among the most dramatic yet in a saga related to the fierce competition to mine a vast iron-ore vein in Guinea's Simandou mountain range.

Rio Tinto PLC, which once had the rights to Simandou, last month dismissed two executives and turned over evidence to law-enforcement authorities after emails became public detailing a $10.5 million payment the British-Australian company said it made to a man with close ties to Guinea's government.

Israeli authorities said Mr. Steinmetz's arrest was part of a continuing international investigation involving law-enforcement authorities in the U.S., Switzerland, Guinea and Israel. Allegations of wrongdoing have followed Mr. Steinmetz and BSG Resources Ltd., the mining arm of his family-owned conglomerate, since the company struck a deal to win the rights to Simandou from Rio Tinto in 2008.

The Guinea government, after an investigation, later stripped BSGR of its rights to Simandou. It was a major blow to Mr. Steinmetz, who made his fortune as a diamond merchant in Africa and had made a bold attempt to expand his mining operations in Guinea.

A spokesman for BSGR denied the bribery allegations, which he said were launched by the Guinea government.

"It is BSGR's strong belief that these allegations of bribery by the Government of Guinea are not only baseless, but are a systematic attempt by the Government of Guinea to cover up the endemic corruption which has blighted this country for a number of years," a BSGR spokesman said in a statement.

A spokesman for the Guinea government didn't immediately respond to a request for comment.

Mr. Steinmetz appeared in a Tel Aviv-area court Monday, posted bail for 50 million Israeli shekels ($13 million) and was ordered under house arrest at the request of Israeli police, authorities said. His next court appearance is on Jan. 2.

The U.S. Department of Justice has been investigating claims of bribery and obstruction of justice and presented evidence to a grand jury, The Wall Street Journal has reported. The Justice Department declined to comment.

Simandou has been a source of fascination and corruption allegations in the mining industry since 2008, when it was at the center of a tug of war between mining companies hoping to cash in on China's booming need for industrial materials like iron ore

The block of iron-ore deposits was once controlled by Rio Tinto, but in 2008 Guinea's government handed half those rights to BSGR after the firm carried out a three-year, $165 million exploration program. Guinea said Rio had failed to develop the resource.

BSGR then struck a $2.5 billion deal for Brazilian mining giant Vale SA, which focuses on iron ore, to buy a 51% stake in its Guinea asset.

The Guinea government later alleged that BSGR won its rights by paying bribes to the wife of the now-deceased Guinean President Lansana Conté. BSGR denied the allegations on Monday. The widow of Mr. Conté, Mamadie Touré, is cooperating with U.S. officials, according to people familiar with the investigation.

An attorney for Ms. Touré didn't respond to a request for comment.

The arrest of Mr. Steinmetz follows a mounting scandal at Rio Tinto, which last month dismissed two top executives for their alleged role in making $10.5 million in payments to a consultant in Guinea, former Lazard Ltd. managing director François de Combret. Rio fired its energy and minerals chief, Alan Davies, and its head of legal and regulatory affairs, Debra Valentine, following a review of internal company emails allegedly detailing the payments to Mr. de Combret.

Mr. de Combret had been helping Rio negotiate with the Guinean government to retain the Simandou iron-ore concession, according to internal Rio emails reviewed by The Wall Street Journal.

Attempts to reach Mr. de Combret were unsuccessful.

The emails show Mr. Davies in 2011 asked permission from the company's then-iron-ore chief, Sam Walsh, to make the payments to Mr. de Combret. Mr. Davies said in the email that Mr. de Combret's services "were of the most unique nature," including helping to facilitate communications with Guinea's president, Alpha Condé.

Mr. Walsh later became CEO of Rio Tinto in 2013. He stepped down earlier this year and was replaced by Jean-Sébastien Jacques. Messrs. Walsh and Davies and Ms. Valentine couldn't be reached for comment.

Write to Scott Patterson at scott.patterson@wsj.com and Rory Jones at rory.jones@wsj.com

(END) Dow Jones Newswires

December 19, 2016 10:50 ET (15:50 GMT)

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