https://www.visir.is/g/202099179d (sorry, was unable to find a source in English, hopefully google translate does a decent job).
In this particular case, assistance from the Icelandic police was deemed crucial to shutting down a major Silk Road drug ring, and part of the Bitcoin funds confiscated by the FBI (355 million krona, or about $3M USD) was given to the Icelandic government. A special law then had to be approved in Parliament to enable that money to be ear-marked for cyber-crime defence.
I find it insane that funds confiscated by the police in the US can be used and spent by that police force as they seem fit. That money should clearly to into either a state of federal fund, to be re-distributed.