IMF executive board members were briefed about the issue at the time of her hiring and concluded it would not impair her ability to do the job. It is unlikely that will change unless the investigation results in formal charges against her.
The case involves Lagarde’s decision as finance minister to refer a dispute between businessman Bernard Tapie and a state-owned bank to arbitration, ending a decades-old battle that was at the time wending its way through the French courts.
The arbitration panel awarded Tapie more than $400 million in interest and damages, and prompted charges from opponents of then-President Nicolas Sarkozy that the decision to put the case before an arbitrator was a political favor in return for Tapie’s election support.
Questioned about the probe last January during an interview at the World Economic Forum in Davos, Lagarde told French telelvision that sending the longstanding dispute to arbitration “was the best solution at the time and I believe I made the right choice.”
IMF spokesman Gerry Rice declined comment on Wednesday’s police search, saying it would be inapproriate to discuss “a case that has been and is currently before the French judiciary.”
Other IMF officials, who declined to speak for the record, said there was no review or other action planned by the IMF board as a result of the search of Lagarde’s home. Along with her apartment, authorities have searched the home of her former chief of staff, an arbitration judge and other officials close to the matter.
The Reuters news agency quoted her lawyer, Yves Repiquet, in Paris as saying that the apartment search “will help uncover the truth, which will contribute to exonerating my client from any criminal wrongdoing.”
Still, the search is an uncomfortable reminder of the ongoing investigation in Paris, and the turmoil it could cause for the IMF if it moves forward.
Lagarde took over the IMF in the tumultuous weeks after former managing director Dominique Strauss-Kahn was arrested in New York and charged with sexually assaulting a hotel maid. Those charges were eventually dropped, but the incident left the fund adrift at a critical time in discussions over Europe’s debt crisis and other issues.
Lagarde quickly established herself in the fund’s top job, and has been regarded as a n important arbiter in Europe’s ongoing debate over how to fix the euro zone — negotiations that remain highly sensitive, with Cyprus now teetering on the brink of financial collapse and possible exit from the currency union.
Resolution of the investigation may still be months away — and would require several steps before formal charges are brought against anyone. The current probe is being conducted by a team of magistrates, who have broad investigative authority. They will make their recommendation — to drop the matter or bring charges — to a prosecutor, who would then have to decide how to proceed. A judge would then review any decision to prosecute, and would have to issue the French equivalent of an indictment that would send any case to trial.