The high-profile dawn raids and arrests of the Iranian-born Tchenguiz brothers, Robert and Vincent, is a big test for the Serious Fraud Office (SFO), which is masterminding the case against them.
Even since the 'great panic' erupted with the collapse of Lehman Brothers in September 2007, the SFO has been struggling to find ways of bringing prosecutions against those involved in the crisis. It looked at a number of possibilities, including the events leading to the near collapse of the Royal Bank of Scotland and HBOS (now merged into Lloyds Banking Group), and the role of the London-branch of the US insurer AIG in creating some of the toxic securities which were at the vortex of the crisis.
In the case of RBS and HBOS it lacked the powers it wanted and the probe into AIG and those working in its London office was left to American regulators and enforcers.
The relationship of a number of Britain's top business people, including the high-profile Tchenguiz brothers, with the collapsed Icelandic bank Kaupthing looked to be far more fertile territory. The Icelandic authorities themselves had done a great deal of spade work, producing their own 2,300 page report into the causes of the failure of the Icelandic bank, in which the intimate relations between Kaupthing and the Tchenguiz were exposed publicly.
The brothers were borrowers, lenders, equity holders, partners and sat on the boards with Kaupthing officials - all at the same time. They were not alone. The investigators at the SFO and in Iceland also uncovered troubling relationships with a top UK retailer, well-known top-end residential property developers and a senior former Conservative Party donor. If these cases are pursued - matters are still at a very early stage - the rash of prosecutions could prove to be the most serious since the Guinness affair of the 1980s.
Prosecutions could prove to be the most serious since the Guinness affair
Achieving a measure of success is important for the Serious Fraud Office under the stewardship of its current chief Richard Alderman. As director of the SFO, Alderman has sought to bring a different style to the SFO, much more in the mould of the American authorities.
Alderman, a former head of HM Customs & Excise, believes the key to success in fraud prosecutions is often cutting deals with the parties. He used this technique with some success to bring an end to the longstanding investigations into bribery allegations at the UK's biggest arms dealer BAE. But although he was successful in reaching a deal with BAE, which satisfied the Department of Justice in the United States, he had far more trouble convincing the UK courts that the deal reached was satisfactory.
The SFO chief now finds himself fighting on a new front. Like much of the rest of the government, the SFO, which is both an investigating and prosecuting authority, has had to deal with cuts in resources at a time when financial crime is at its peak. Indeed, aside from the Kaupthing-Tchenguiz case, the SFO is having to deal with a number of other high-profile investigations.
It has sitting in the wings the case against one of the most famous fugitives of the 1990s, the creator of the Polly Peck empire Asil Nadir, who returned to the UK from Northern Cyprus in 2010 in the hope that he can clear the stain on his reputation.
Amid all this court activity, the Coalition has earmarked the SFO for reform. In opposition, the then- Shadow Chancellor George Osborne floated the idea of a new national financial crime agency which would bring together all agencies conducting fraud and financial prosecutions under one roof. It would mean that the SFO, which concentrates on corporate and City crime, would be merged with other agencies such as Serious Organised Crime Agency (SOCA), which is more concerned with mafia and drug-style crime than white-collar prosecutions.
If the current Home Secretary Teresa May has her way the SFO would lose its independence as a prosecuting authority and simply come under a centralised Crown Prosecution Service. It is against this tortuous political background that a 'bare knuckle fight' for the future operations of the SFO is taking place.
The weakness of the SFO's position is that, down the decades, it has had a serious of failures - such as the prosecutions arising from the frauds committed by the late Robert Maxwell. As such, its credibility has been badly damaged. Certainly, it has learnt lessons. The charges brought in fraud trials were too complex and almost impossible for juries to understand. This gave huge advantage to the defence and the long, drawn-out trials providing ample opportunity for unscrupulous associates of the defendants to try and corrupt witnesses and jurors. That is among the reasons that Alderman has favoured American-style plea bargaining under which, as in the case of BAE's alleged bribery of officials in Tanazania, the company agreed to lesser charges of false accounting.
Such an approach would, in Alderman's view, produce better outcomes. But it will mean a greater degree of flexibility from judges who rightly are sensitive to proper procedures. One way in which Alderman believes this can be tackled is by keeping the judges abreast of the proposed cases at a very early stage.
Clearly, the SFO is fighting for its very existence and ensuring successful prosecutions from the Kaupthing collapse will be critical.
Alex Brummer is City Editor of the Daily Mail
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