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(Updates with identity of second businessman, adds details)
By Tova Cohen
TEL AVIV, Dec 20 (Reuters) - Israeli police arrested a former business associate of mining billionaire Beny Steinmetz on Tuesday in a widening inquiry into allegations of bribery and corruption in Africa.
Asher Avidan, ex-president of a company linked to Steinmetz's BSG Resources (BSGR) and a former employee of Israel's Ministry of Foreign Affairs, has been placed under house arrest until Jan. 2, police said.
The move follows the detention on Monday of Steinmetz, 60, who along with other Israelis living abroad is alleged to have paid tens of millions of dollars to senior public officials in Guinea to advance their businesses, police said.
Yuval Sasson, a lawyer for Steinmetz and BSGR in Israel, said on Tuesday that Steinmetz would fight the allegations and prove his innocence. Reuters tried to contact Avidan's lawyer but he was not immediately available for comment.
As part of international efforts to improve transparency, the Guinean government under President Alpha Conde, elected in 2010, launched a review of mining contracts signed before 2011.
Within its review the West African nation investigated how BSGR obtained the rights to the Simandou deposit, the world's largest untapped iron ore reserves, in 2008.
Anglo-Australian mining group Rio Tinto and BSGR have made legal claims against each other over the mining rights in Simandou.
Israeli police were probing "bribery of a foreign public employee and money laundering" spokesman Micky Rosenfeld said, in a joint investigation by agencies from the United States, Switzerland, Guinea and Israel in coordination with the OECD.
A review by the OECD's Working Group on Bribery in 2015 recommended Israel step up its enforcement efforts.
Steinmetz's Israeli and French passports have been confiscated and bail set at 50 million shekels ($13 million) in cash and another 50 million shekels in property.
Avidan also holds Israeli and French passports, which will also be confiscated. His bail was set 1 million shekels with another 8 million shekel guarantee to be signed by a third party.
Sasson said on Monday the proceedings were "a recycling of an old process led by the government of Guinea ... in order to illegally expropriate BSGR's mining rights".
In an interview with Israel's Army Radio on Tuesday, when asked how Steinmetz's spirits were, Sasson said he was "strong and more determined than ever to prove his innocence".
BSGR described Steinmetz as an adviser to the company, which is headquartered in the Channel Islands and is a mining arm of Steinmetz's business conglomerate.
A BSGR spokesman told Reuters that Steinmetz does not sit on BSGR's board or have an executive role, but "is the beneficiary of the foundation which owns BSG Resources". ($1=3.8539 shekels) (Additional reporting by Maayan Lubell in Jerusalem and Barbara Lewis in London; Editing by Greg Mahlich and Alexander Smith)