Investigation Clears IMF Chief Accused of Abusing His Power

By Michael S. Rosenwald
Washington Post Staff Writer
Sunday, October 26, 2008

An outside investigation has cleared International Monetary Fund managing director Dominique Strauss-Kahn of abuse of power accusations resulting from an affair he had with a former division chief at the organization.

The IMF's board, which announced the findings last night, said that Strauss-Kahn's actions were "regrettable and reflected a serious error of judgment" but that there was no "harassment, favoritism or any other abuse of authority." The decision was unanimous.

Strauss-Kahn has publicly admitted to and apologized for the affair, and his wife, a prominent French television personality, has called it a "one-night stand."

Last night, Strauss-Kahn said in a statement, "I am grateful that the Board has confirmed that there was no abuse of authority on my part, but I accept that this incident represents a serious error of judgment."

The investigation by law firm Morgan, Lewis & Bockius focused on whether Strauss-Kahn abused his power in connection with the relationship he had with Piroska Nagy. Twenty-eight people were interviewed, including Nagy. The report did not name Nagy as the person with whom Strauss-Kahn had an affair.

The law firm found that the affair, which was brief, started in January and was consensual. There was no evidence that Strauss-Kahn showed favoritism toward Nagy because of the affair or for keeping it private, nor did he pressure her to keep it secret. The two did agree to take various steps to hide the relationship, the report said, though those steps were not detailed by the IMF.

Strauss-Kahn also did not pressure Nagy to leave the IMF, investigators said.

The investigation threatened to diminish the IMF's standing in the world just as it was taking a prominent role in helping nations deal with the fallout of Wall Street's collapse and the credit crisis. Just last week, the IMF tentatively agreed to loan $2 billion to Iceland, whose banking system has crumbled.

A. Shakour Shaalan, the IMF board's dean, told reporters last night that the mood of the board was positive and that the incident would "in no way affect the effectiveness of the managing director in the very challenging and difficult period ahead."

IMF officials said Strauss-Kahn, who is serving a five-year term, did not offer to resign, nor was he asked to. If he had been ousted, world leaders would have had to scramble to find a new director. Europeans usually run the IMF, while Americans typically run its sister organization, the World Bank. The latter organization suffered its own scandal last year after Paul Wolfowitz resigned as president after promoting a longtime female companion.

Strauss-Kahn, who took over the IMF in 2007, was previously France's finance minister and an influential figure in French politics. Nagy worked in the IMF's Africa department and left this past summer, when rumors of her affair with Strauss-Kahn surfaced. She has said she left her post "as part of the normal downsizing at the IMF." The organization was at the time reducing its staff by as much as 10 percent.

Nagy now works as an economist with the European Bank for Reconstruction and Development in London.

Staff writer Anthony Faiola contributed to this report.

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