Iceland’s banks were among the first to crash in the financial crisis that rocked the world in 2008. So it may be no surprise that the authorities in many jurisdictions have reacted with particular severity. On the Icelandic side, we have seen bankers led away to prison, facing severe sentences and public humiliation. On the British side, we have seen the use of severe measures to protect and confiscate money. The lessons of Iceland may well be learnt by other authorities, who have supinely caved in to the bankers lobby. 

The British response was perhaps the most extraordinary. The use of anti-terrorism rules to take control of assets held in Britain by troubled Icelandic bank Landsbanki Islands, was designed to protect the deposits of some 300,000 retail British account holders held at Landsbanki's Internet bank, Icesave. Landsbanki had also set up an Icesave operation in the Netherlands and this also collapsed in October 2008. The use of the anti-terrorism regulations was counter-intuitive: the UK’s Anti-terrorism, Crime and Security Act 2001, passed after 9/11, was clearly designed to track and confiscate terrorist assets. When it was used to seize the assets of a state friendly to the UK, the Icelanders were absolutely livid. 

Iceland set about its own investigation into the collapse of their banks by appointing Olafur Thor Hauksson and international white-collar crime investigator, Eva Joly (who led the French investigation into corruption at Elf-Aquitaine and is expected to stand for the French presidency on a green ticket). Their investigation was designed to assuage the vitriol and bitterness of the Icelandic people who have seen some $100 billion lost in the crisis. 

The collapse of the three largest banks, Kaupthing, Landsbanki and Glitnir has hit every member of this small community of 300,000. Indeed, the prime minister Geir Haarde said on 6 October 2008, "There [was] a very real danger ... that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could have been national bankruptcy." Their measures averted this. 

Many bankers have been put under arrest, some have been put into solitary confinement. None, as yet, has been sentenced. 

The first banker to have his collar felt was Hreidar Mar Sigurdsson, the former President of Kaupthing Bank. He was arrested last May and accused of criminal malpractice. Sigurdssonwas held for fourteen days in a police cell and placed in solitary confinement. Kaupthing's collapse in October 2008 had cost the British Treasury £2.5bn in compensation, and hundreds of UK savers with its Isle of Man branch were never fully compensated. 

Hreidar Mar Sigurdsson, the former President of the failed Kaupthing bank, was the first banker to be arrested for criminal mispractice

In January this year, the long arm of the law moved into another large local bank that had bit the dust. Hauksson showed he was seriously concerned about the governance of Landsbanki when he arrested the bank’s former chief executive Sigurjon Arnason and Ivar Gudjonsson, ex-head of the bank's investments arm. They were held on allegations of market manipulation. This includes the widespread practice whereby banks lend money to investors to buy shares in the bank. These shares are then used as collateral for the loans. This is an inherently unstable practice as the loans are not reclaimable once the shares lose value.

The investigators today are thought to be expanding their investigation into the bank more widely, to look at its governance standards and practices. For example, sources close to the investigating team have raised questions about the bank’s largest shareholder at one time, Björgólfur Thor Bjorgolfsson. Bjorgolfsson led negotiations with the government as the bank was failing, on the basis that he was not a board member, but only the bank’s largest shareholder. In fact, his father, who was chairman of the board, left the country shortly before its collapse. It should be emphasised no such Icelandic investigation of Bjorgolfsson has been confirmed. 

Björgólfur Thor Bjorgolfsson. The 42-year-old entrepreneur led negotiations with the government as the bank was failing, declaring at the time that he was not a board member but only the bank’s largest shareholder. In actual fact, he had a hand in much of what the bank did, and has since become a major focus of the Icelandic investigation

Bjorgolfsson, who is 43, is a highly successful entrepreneur. He made a number of fortunes, becoming  the country’s first billionaire. He came from a familiy of Icelandic businessmen, although his father’s career as a shipping magnate was cut short when he was convicted of fraud. That shock is said to have reverberated down the generations to his son. 

Bjorgolfsson began his business career as a manufacturer of soft drinks in Iceland. He then expanded into beer, moving to St. Petersburg to scale up his business. There he teamed up with some Russian businessmen using  a Cyprus company called Bravo Holdings. The new company received financing from the International Finance Corporation, part of the World Bank, and a US investment firm, Capital International. The business boomed because  it was exempt from the very high Russian duties on beer. 

Bjorgolfsson ran the brewing business well and profitably. Within three years, Bravo International, Russia's fastest-growing brewer, had a 17% market share in the St. Petersburg region and 7% in the Moscow area. Bjorgolfsson  and his colleagues struck gold in 2002, when Bravo International was acquired by Heineken NV of The Netherlands for $350m. 

The money this sale generated, and similar sales by other entrepreneurs, was brought back to Iceland and invested in the newly privatised Icelandic banks, Kaupthing, Landsbankki and Glitnir and in the three top institutional investment houses Exista, Straumur and SPRON. The newly enriched Icelanders then also took certificates of deposit from the Icelandic banks and borrowed multiples of the cash holdings in banks in Luxembourg, the Cayman Islands and the Tortugas. 

Bjorgolfsson was particularly adventurous, co-investing in many projects in Eastern Europe, including Czech Telecoms and Bulgarian Telecoms. He also invested in Bulgarian pharmaceuticals, through Pharmaco and in local financial services companies. He had a broadly-based investment portfolio in this part of burgeoning Central Europe. In addition to investing in the burgeoning emerging markets of Central and Eastern Europe, he also invested in Icelandic banks, in particular Landsbanki. This was the largest he made in Iceland although the scale of the investment has never been completely disclosed. Borgolfsson maintains it did not amount to 20% of the equity, the point at which he must declare himself a ‘related party’. This was questioned by colleagues, and quite likely by the investigators now interested in the source of his wealth. They have found a complex chain of offshore companies, holding the investor’s stake.

One former colleague close to the Icelandic government investigation, said, ‘Bjorgolfsson has maintained since the beginning that he has no major relationship with Landsbankki. He was never on the board and that is his biggest defence. In fact his hand was in everything the bank did.  By remaining off the board, and not reaching the related party level, he could borrow at will and extensively for private ventures where his involvement were not declared to bank shareholders.” One former colleague said, ‘If Thor had become a director of Landsbanki, he couldn’t have borrowed all the money he did from the bank (as a related party).” A spokesman for Bjorgolfsson insists he was never required to take a board position and so had no responsibility for the bank’s subsequent travails.

That said, Bjorgolfsson has made no secret of his investments in the Icelandic banks. One observer commented, ‘He wanted all the banks to lend to his projects. He couldn’t see the difference between the listed company and the private company.’

The investment bank Straumur (of which Bjorgolfsson was chairman) was just such a vehicle, taking on loans, which, analysts say, it couldn’t ultimately repay. This has led some to argue that Bjorgolfsson’s empire was at the heart of the extraordinary explosion in the Icelandic economy, which came unstuck so badly. Straumur owned a series of companies called Novator, and it is understood that Bjorgolfsson put Euro 150million into part of his private fiefdom called Novator One. A management contract was then completed between Straumur and Novator to enable Novator to manage the fund which was owned by Straumur. Bjorgolfsson took cash out of Straumur. He also got 20% of the revenues and a 2% management fee. Ultimately, there were huge losses and Straumur went bankrupt. 

Investigators says that the Novator group of companies was controlled by Bjorgolfsson through structures based in the British Virgin Islands, Cyprus and Luxembourg.  The Novator name identifies the company as Bjorgolfsson’s, but the secrecy laws in these jurisdictions obstruct investigators who want to find the assets held by the company and their precise ownership. Moves are afoot at the OECD to remove some of these protections for tax evaders, but they are unlikely to come into force in time for the Icelandic authorities and their banks to retrieve their rightful property.

What remains of the Bjorgolfsson fortune? The whizkid entrepreneur is still believed to own Actavis, the pharmaceutical company. This is bankrupt, but kept afloat by Deutsche Bank, still hoping above hope, to regain its substantial loans made to the man who at one time was perceived as having the Midas touch. He also owns a yacht and two houses in London. These are sought by creditors. The issue now for the Icelandic investigators is whether they can look through the plethora of offshore jurisdictions to find the real and secret wealth of the one-time business king of Iceland. 

The author approached Thor Bjorgolfsson’s spokesman Raghildur Sverrisdottir. She said that Bjorgolfsson was never a director on the board of Landsbanki and so could not comment on the bank or its demise. Bjorgolfsson himself was not available for comment.