In Conakry, a gleaming hotel looms over the filth of the city. Behind it a small coastal cove acts like a floating rubbish dump, collecting brightly coloured detritus from the murky Atlantic and distributing it in piles in stubbly black rock pools on the beach. A group of gangly young men sit by an abandoned fishing boat, looking despondently out to sea.

But in the gleaming, chandelier-lit hotel lobby it is easy to forget the scenery outside. Here, European, Australian and Brazilian mining executives, in jeans and suit jackets, sip rosé as they check emails. African businessmen huddle in groups, discussing shareholdings and the possibility of chartering planes to reach remote sites.

Businessmen think nothing of hiring private aircraft to reach Guinea's abundant reserves of diamonds, gold, uranium, aluminium ore and bauxite, because the returns are unparalleled. The country is an almost textbook example of what some refer to as the "paradox of plenty": it sits atop some of the most significant untapped mineral reserves in the world while its people live in squalor, without clean water, electricity, education or infrastructure.

In years past, during the dying days of Lansana Conté, the army general who ruled Guinea with an iron grip for almost all of his quarter-century tenure, an Israeli-French billionaire could be spotted similarly holding court at Conakry's once popular Novotel. Beny Steinmetz, one of the wealthiest men in the world, came here, sources say, with a clear mission. "Beny Steinmetz wanted to make sure he was the closest white man to President Conté," said one former presidential aide of the president.

Beny Steinmetz, whose firm BSGR secured the rights to extract half of Simandou’s ore. Photograph: Shaun Curry

The tycoon also wanted, and successfully obtained, the rights to mine Simandou – a mountain range in Guinea's remote south-east containing millions of tonnes of iron ore of the highest grade. According to some estimates, the ore from Simandou could generate around $140bn over the next 25 years, more than doubling the country's GDP.

Until now Guinea's riches have been exploited in a haphazard manner, one that benefited a tiny number of people in the country. Responsibility for this state of affairs lay with Conté, whose government was characterised not only by "state-sponsored abuses and repression", but by "an increasing criminalisation of the state" in which assets were seized and exploited by his close associates, according to a Human Rights Watch report.

Steinmetz is reckoned to have amassed a personal fortune of more than $4bn. Some say he has more than twice that. What appeared certain, however, was that when his firm, BSGR, secured the rights to extract half the Simandou iron ore, he was about to became a lot richer.

The Conté regime had originally granted the rights to the Anglo-Australian company Rio Tinto in the 90s. In 2008 those rights were stripped from Rio Tinto and then – in what is said to have been one of the dictator's final acts of government before his death – half were granted to BSGR.

The deal was notable not only because BSGR's expertise was in mining diamonds, rather than extracting and exporting iron ore, but because the glittering prize of Simandou had cost the company so little: rather than paying the government of Guinea for the concession, it had invested $165m in an exploration programme in the area.

This may not be unusual practice in the industry, and BSGR insists it made that investment "with no guarantee of success". But the region was known to be rich in iron ore, and the value of the concession became clear in April 2010 when BSGR announced it was selling 51% of its stake – effectively a quarter of the mountains' iron ore – to Vale, a Brazilian mining firm.

The two formed a joint-venture company, VBG, which would produce about 2m tonnes of ore a year, and which pledged to spend $1bn building a railway that would carry the ore to the coast.

The price paid by Vale: $2.5bn.

Even within the buccaneering world of African mining, the deal was regarded as stupendous. For an investment of just $165m, Steinmetz's BSGR had secured an asset worth around $5bn. One veteran of African mining was quoted in the financial press as saying that Steinmetz had hit the "jackpot". Many in the region were incredulous, however. The reaction of the African telecoms billionaire Mo Ibrahim was not untypical: "Are the Guineans who did that deal idiots or criminals?" he demanded to know. "Or both?"

The president's wives

During Conté's period in power mineral prospectors resorted increasingly to accessing the president through his four wives, bestowing lavish gifts and bribes to gain favours, according to others who were involved in business at the time.

"All of Lansana Conté's wives were involved in mining and business deals," said Abdoul Rahamane Diallo, Guinea programme co-ordinator for the Open Society Initiative for West Africa, and a commerce specialist at the US embassy during Conté's rule.

One wife in particular was favoured by the ageing president: his fourth and youngest bride, Mamadie Touré. "Mamadie was regarded as the most influential wife – she lived in the home town where Conté lived, she is young, she was close to him, she had real influence," said Diallo. "Whatever people wanted to bring into Guinea, whatever they wanted to take out, they went through one of his wives."

After the country's first fully democratic elections in December 2010 the new president, Alpha Condé, pledged an end to the years of corruption and misrule; he also promised to scrutinise closely some of the controversial deals his predecessors had struck with major mining companies.

Before long, the US justice department had joined Guinea's government in examining whether the most lucrative and controversial deal of all – the Simandou concession – had resulted in breaches of the US Foreign Corrupt Practices Act and anti-money-laundering laws.

That, in turn, led to Steinmetz coming under investigation by the FBI. He firmly denies paying any bribes, or any other wrongdoing. So does BSGR, a Guernsey-registered company that he controls through family trusts. The allegations against him are "preposterous", Steinmetz insists. They are rooted, he says, in envy of his great success.

The Simandou mine, whose ore could generate $140bn over the next 25 years. Photograph: Rio Tinto

The people's outrage

The epic proportions of the Simandou story are not lost on ordinary Guineans, who have been following the saga with varying degrees of outrage.

"Yes, yes, yes, people are interested in what happened with BSGR, and they are mobilised," said Abdoulaye Bah, a journalist at the popular current affairs website Guinée News.

"They are speaking about it on the radio, reading about it in the papers. No one really understands what happened, but they are sure, with Simandou and all the other mining contracts, there was big corruption. Everyone knows that when the deal was done Conté was sick, and he wasn't in control."

At Sanfil, a neighbourhood in central Conakry where children sprawl across car bonnets and women busy themselves with the arduous task of washing and cooking despite infrequent water and electricity supplies, residents say they know of Simandou's fabled wealth.

"Simandou is a very important mine," said Ibrahima Barry, 62, a civil servant, bathed in yellow light from the plastic sheeting that acts as makeshift walls in a roadside tea and egg shack. "If they exploited it the way they are supposed to, then it could really help the country.

"But instead, these rich foreigners come, they buy Simandou, they do hardly any work, they sell it, and they pocket the profits. It's not right."

Further down the road in Sanfil, Rougui & Zee hairdressers is closed for Ramadan, but a group of women congregate in the owner's living room. They laugh when asked whether they are happy with the mining deals that have been done.

"Of course we are not happy – we do not profit at all," said Françoise Katty, a 22-year-old maths graduate who wears a black hijab and striped green and purple maxi dress, and who says it is almost impossible for graduates to find jobs in Guinea.

"We know about the diamonds and the iron, but we don't even know what they are doing to exploit it," said Adama Camara, 20, a student in political science at the university in Conakry. "It's not that we are against foreign companies coming here. It's a question of whether they come and go, or whether they want to stay and develop the country. Just look at the poverty and filth around you – just look!"

Guineans speak fluently and emphatically about the state of their country, and the French words they use to encapsulate their condition – la misère (misery), la galère (hard times), la pauvreté (poverty) – can almost take on the power of a motto in Conakry.

It is a far cry from the ideal – liberté, égalité, fraternité – that France claimed to impart to its former colonies. But even by the standards of other Francophone African countries – many of which are among the poorest in the world – Guinea is faring particularly badly, and many blame France for abandoning the country when its first post-independence leader, Ahmed Sékou Touré, essentially stuck two fingers up at the former colonial master, famously telling Charles de Gaulle in 1958: "We would rather have poverty in freedom than riches in slavery."

"France retaliated by cutting off all ties with Guinea, withdrawing all of their aid and technical assistance," said Diallo. "If you think of Ivory Coast, or Senegal, which have huge French presence and investment, it shows the relative lack of interest France has had in Guinea."

Ties were restored under Jacques Chirac, and France is now Guinea's biggest bilateral aid donor. But neither foreign aid nor government spending is reversing the fortunes of its 11 million people, an increasing number of whom are flocking to the capital in search not only of opportunities, but of food and the basic means of survival.

Widespread poverty

"We came here looking for money," said Kadiatou Diallo, 30, whose albino skin is wrinkled and covered with blistering moles, giving her the appearance of someone twice her age. Diallo stands on a thin wedge of pavement in front of Conakry's main Faisal mosque with her sister, Mariama Kesso Diallo, 28, and Mariama's eight-month old daughter, Assatou Baïlo Diallo – they sleep, eat, wash and beg here, hemmed in between large pools of stagnant rainwater as the rainy season pummels the town, incessant traffic and their makeshift tent – a single side of plastic sheeting that provides neither shelter nor privacy.

"Our parents are dead. We did not have the means to farm, we had nothing. We don't have enough to eat here either – passersby occasionally give us money or rice. That is more than we could hope for back home," she said. "We know there is great mineral wealth here. But the government refuses to share it with us to relieve our misery. It's not fair."

The Diallos, who travelled from Labé, around 280 miles north-east of Conakry, suffer from malaria, stomach problems and other health issues, like many who live and sleep in the grime of Conakrycapital's streets. It is Ramadan, and large gatherings of Guineans – 85% of whom are Muslim – create a space amid the rubbish and puddles to lay down their mats to pray beside the road.

People in Guinea's hinterland where most of its natural wealth is to be found are even poorer.

"People everywhere in Guinea are very poor. The further you travel inside the country, the worse the situation is," said Dr Faya Millimono, leader of a new opposition party, the Liberal Bloc, who comes from the forest region not far from Simandou. "The things they are asking for are so basic: schools for their children, hospitals for when they are sick." There are hospitals, but the way they are, you might go in with malaria, you will come out with two or three other diseases. Those in Conakry who are rich enough to leave fly to Dakar for medical treatment. Those in the interior, they die."

Condé has said repeatedly – echoing the mantra of other internationally popular African presidents in nearby countries such as Ghana and Liberia – that the key to lifting people such as the Diallo sisters out of poverty is a radical transformation of the country's mining sector, so that the proceeds can be used for the good of all Guineans.

His pledge comes as deals between mining multinationals and governments in the developing world come under scrutiny. The past year has seen the US, the European Union and the UK push for greater disclosure of payments made by mining and oil firms. In the runup to the G8 summit in Northern Ireland in June David Cameron wrote that the time had come to insist on greater transparency from resource-extracting companies, in order to "lift the veil of secrecy that too often lets corrupt corporations and officials in some countries run rings around the law".

While trying to rebuild his country, Condé has sought the advice of Tony Blair's African Governance Initiative, and of George Soros, the wealthy investor and philanthropist.

With western governments across the west all singing from the same hymn sheet and with Blair and Soros pledging public support, the new president clearly had some powerful allies.

President Alpha Condé, in office since 2010, wants to transform the mining sector, so that the proceeds can be used for the good of all Guineans. Photograph: David Rose/Rex Features

Condé's government produced a new mining code, one that was intended to combat corruption and offer greater environmental protection. After several revisions, one investor in Conakry said the new code was "excellent".

With the help of Soros, Condé hired US lawyers and investigators with experience of looking into corrupt deals. These individuals assisted a committee of inquiry established in Conakry. By last January the FBI had been persuaded that it, too, should investigate the Simandou deal, to establish whether any US laws had been broken.

As the committee of inquiry's work progressed, reports emerged in the Financial Times and, subsequently, the New Yorker, of allegations that a number of luxury gifts and payments had been handed to relatives and associates of Lansana Conté before his death, as well as to senior figures in the short-lived military dictatorship that followed him. They included claims that a gold- and diamond-encrusted miniature Formula One car was given to a former government minister. BSGR 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.

The committee, its investigators and the FBI began to search for documentation that would shed light on the way in which the Simandou deal had been sealed.

They were not the only people hunting down documents.

An arrest in the US

In March an associate of Steinmetz, French national Frederic Cilins, 50, contacted Conté's widow, Mamadie Touré, at her home in Jacksonville, Florida. What Cilins did not know was that Touré had already been approached by the FBI, and had agreed to co-operate with its investigation. The phone call was being recorded, and when Touré met Cilins at a cafe at Jacksonville airport on three subsequent occasions, she was carrying a wire. After the final meeting, just as he was about to board a flight to Miami, Cilins was arrested. He is now awaiting trial.

When Cilins appeared in court for a preliminary hearing, it became clear that the FBI was attempting to discover whether BSGR had paid bribes to officials in Guinea in order to secure the rights to Simandou's riches. The US justice department accused Cilins of attempting to obstruct that inquiry by disposing of some of the evidence.

According to evidence submitted at a preliminary hearing, he was captured on tape offering Touré a substantial bribe to destroy a number of documents. "We need to urgently, urgently, urgently destroy all of this," he is alleged to have said.

Cilins denies he was trying to pervert the course of justice – an offence that carries sentence of up to 20 years in jail. He insists he was merely attempting to destroy forged documents that were being used in an attempt to blackmail him and BSGR.

On hearing of his arrest BSGR sought to play down any connections between the company and Cilins. Ian Middleton, Steinmetz's spokesman at Powerscourt, a London PR firm, said: "Cilins is not an agent for Steinmetz's company." Subsequently, however, Powerscourt conceded that Cilins had previously been engaged by BSGR in Guinea.

In court the prosecution alleged that Steinmetz and Cilins are close friends: the latter's attorney says she does not know whether this is true.

After Cilins's first court appearance, the FBI lodged a formal complaint with the court that set out the reasons for his arrest. This document makes clear that another individual was also under investigation. It describes one phone conversation during which Touré is alleged to have asked Cilins whether an individual identified as "CC-1" had agreed to the payment she was to receive. Cilins is alleged to have replied: "Of course."

Earlier tIn the past month both the Israeli newspaper Yedioth Aharonot and the New Yorker reported that they believed CC-1 – or co-conspirator number one – to be Beny Steinmetz. A number of individuals who are familiar with the investigation have told the Guardian that this is correct.

Furthermore, the Guardian has seen documentation that shows that by the time Cilins was arrested the FBI was already investigating Steinmetz in an attempt to establish whether he played any role in the alleged wrongdoing.

Asked about this aspect of its investigation, the US justice department said: "The department declines comment."

Steinmetz and BSGR both vigorously deny paying any bribes and any other wrongdoing. In an interview with Yedioth Aharonot in June, he dismissed the accusations that he faces as "preposterous rumours", prompted by envy. "There are no skeletons in the closet," he said. "The company pays nothing to anyone."

Steinmetz has recently been spending time in Israel. He also holds French citizenship, and has spent time recently on the Côte d'Azur. Asked about the US investigation and Steinmetz's whereabouts, Middleton, his spokesman at Powerscourt, responded by threatening the Guardian with a libel action. "Your line of questioning risks defaming Mr Steinmetz and may give rise to legal action," he said. A few hours later the Guardian received a warning letter from Mishcon de Reya, one of the London law firms that represents Steinmetz.

Middleton also issued a statement saying: "We have no reason to believe that Mr Steinmetz is under investigation in the US or elsewhere. Mr Steinmetz is a hugely respected businessman who has operated in dozens of countries for 35 years and has faced no evidenced allegations anywhere." A subsequent statement said: "He has not been approached by the authorities and he denies any knowledge of wrongdoing."

Middleton added that the Guardian's questions about the US investigation were the direct result of what he described as a "desperate smear campaign" against Steinmetz, one that he said was being led by Condé in an attempt to divert attention from domestic political problems. This is a claim the Guinean president denies.

Earlier this month Cilins's attempt to obtain bail was rejected, and his trial has been fixed for December.

BSGR's Guinea director, Asher Avidan, has been banned from entering Guinea, and two of the firm's local managers – Sory Touré and Issaga Bangourain – have been arrested and are being detained in its central prison. Momo Sacko, one of four Guinean and two French lawyers representing the pair, said their incarceration was "disturbing" and a violation of their rights and Guinea's constitution.

Powerscourt issued a statement on behalf of BSGR complaining that the pair had been "illegally detained" by what it described as an "illegitimate government", and that BSGR had also been targeted as part of a blackmail plot.

But Guinea's government is not backing down. It is devoting what insiders say are "substantial resources" to investigating the BSGR contract – an investigation one government source said was necessarily shrouded in secrecy.

"They are investigating people in the government – they didn't even know that they were involved until they started investigating," said one source, who did not want to be identified because of the sensitive nature of the inquiry. "So [the investigating committee] has to proceed carefully."

"Of course the progress of this case is important to the nation," said Kerfalla Yansané, Guinea's finance minister – an economist who responded to the call to return to Guinea from Congo, where he worked as a World Bank adviser, "out of duty", he said, "because my country needed me".

"When you are in a country like Guinea where you are sitting on big mining potential, but at the same time you are still poor, you don't have infrastructure, there is no water, electricity, good schools or hospitals, then you rightly should be concerned with why your wealth is being hijacked by a few people," Yansané added.

"The more people are getting from our mining sector, the less I'm getting for our budget."

Across town from the ministry of finance, Nava Touré has the physical presence of a man swamped. He met the Guardian at 9pm in a harshly lit office, beset, ironically, as it is the HQ of the national electricity firm, which he runs, with power cuts.

Touré heads the technical review committee, charged by the government with scrutinising mining contracts awarded under previous governments. He says the BSGR case has been a priority from the start.

"We have looked at all the mining contracts and title issues – 18 in total," he said. "BSGR really stands out. They got an almost free title, saying they would spend $150m, then they made a deal of $2.5bn. The government didn't gain anything from that. This is very frustrating."

BSGR, Touré said, will soon be summoned to appear at an oral hearing before the committee because of an alleged failure to answer properly a series of written questions to the latter's satisfaction.

Touré expressed his frustration at what he said was BSGR's repeated lack of co-operation with the process.

"I would not say BSGR has been co-operative, they have been obstructive at every stage," said Touré. "Now they have decided to instruct lawyers to contest the legality of the review committee. They have paid for legal advice from French specialists on constitutional law to try to prove that the whole process is illegal.

"The objective of the committee is to help the government manage the mining sector, to get a better outcome from our natural resources. It is not against Mr Steinmetz personally or any specific company. We have to start somewhere; the first case was BSGR."

After BSGR's spokesperson was asked to respond to Touré's comments, the Guardian received a second letter from Steinmetz's lawyers threatening a libel action. It is understood that the position of BSGR and Steinmetz is that the allegations of corruption are baseless and this will be borne out when BSGR and Steinmetz are cleared of any wrongdoing.

The Simandou project has stalled. At the offices of VSG – the joint venture formed between Vale and BSGR – there was little activity but heavy security. The offices lie in central Conakry at the Cité Chemin de Fer, a complex of dozens of high-rise buildings tiled pink and white, flanked by rows of 4x4s and drivers reclining lackadaisically on staircases, whiling away the hours of the Muslim fasting season Ramadan until nightfall, when they could break their fast with dates and tea.

The Guardian was not invited inside the VSG office, and the director declined to answer questions. A spokeswoman for Vale said it was deeply concerned by the allegations against its joint-venture partner. "Vale is monitoring the case and is at the full disposal of the US government to co-operate with the investigations," she said. There were a handful of staff milling around, the walls decorated with at least half a dozen "no guns allowed" signs, and guarded by security company G4S.

Vale has paid $500m of the sum it had agreed to give to BSGR, and says it will hand over the outstanding $2bn only when the work progresses.

Where the US and Guinean investigation will lead is unclear. Whether Steinmetz and his joint venture will ever be able to exploit Simandou's vast riches remains equally uncertain. For the time being, one of the world's richest men must wait to discover whether he is to become even more fabulously wealthy.

In Conakry, events at the FBI and in Guinea's own criminal investigation team are being closely followed by the businessmen who congregate in the city's air-conditioned hotel lobbies.

"This inquiry is very worrying for those of us who have been in the mining industry for a long time," said the source close to former president Conté. "I worry that they are looking for simplistic outcomes – black and white. Will they be brave enough to say that there is an overlap? The directors that have been running the mining industry are close friends with the people who are still the decision makers in this country to this day."

The source added: "Things are changing here, and it is good for the country. But it is still possible to pay for a mining concession. These days you just have to be a lot more careful about how you do it."