International Monetary Fund chief Christine Lagarde was found guilty Monday of criminal negligence for a government payout to a business tycoon eight years ago while she served as France’s finance minister, but the IMF said she will remain as the fund’s managing director.
The French court chose not to sentence Lagarde to a fine or jail time. Yet the charge of negligence threatens to cloud the reputation of the IMF and its managing director as its mission of global economic integration comes under fire from populist governments around the world.
In a statement Monday, Lagarde said she was not satisfied with the court’s decision but had chosen not to appeal.
“I have been held negligent, but without penalty, without sanction, without registration of the decision. I’m not satisfied with it, but there’s a point in time when one has to just stop, turn the page, and move on,” she said at a news conference. “So I’m very happy to not appeal this decision, and to focus all my attention, all my time, all my efforts, to my mission as head of the IMF.”
In a statement issued later Monday, the IMF’s executive board reiterated its support for Lagarde’s leadership and her “ability to continue to effectively carry out her duties.”
“The Executive Board looks forward to continuing to work with the Managing Director to address the difficult challenges facing the global economy,” the statement said.
The trial centered on an arbitration case that has been a fixture of French politics for more than a decade. Critics say Lagarde failed to adequately vet a massive government payout to French businessman Bernard Tapie in 2008, during Lagarde’s tenure as France’s finance minister under then-President Nicolas Sarkozy.
Tapie, once the major shareholder in the sporting-goods company Adidas, sold the company in 1993 to avoid conflicts of interest before taking a position in the cabinet of France’s then-president, François Mitterrand, a Socialist. But the following year, Tapie alleged that Credit Lyonnais, the partially state-owned bank that had overseen the transaction, deliberately devalued his company and defrauded him of millions. Tapie sold Adidas for 315 million euros; it was resold the next year for more than double that price.
As French finance minister, Lagarde referred the case to a private arbitration panel that ultimately awarded Tapie a payout of 404 million euros ($421 million). The settlement outraged some, who argued that the bank, then owned by the state, was vulnerable to political favoritism.
Lagarde, 60, had faced up to a year in prison and a fine of 15,000 euros. But one of the presiding judges said Monday that the defendant would face neither and would not have a criminal record.
Legal experts and IMF analysts said that Lagarde had been transparent about the allegations she faced from the beginning of her leadership at the fund.
“Now, she has a gray mark on her record, and for those people who do not like her, that may be brought up,” said Edwin Truman, a senior fellow at the Peterson Institute for International Economics. “But I think she’s very respected.”
In her more than five years at the IMF, Lagarde has led the fund in recognizing the challenge of growing global inequality, changing members’ voting shares to help account for the growth of emerging nations such as China and persuading countries to provide backup financing for the fund, Truman said. As the first female head of the IMF, she also gained recognition as a role model.
Lagarde ran practically unopposed in her reelection to a second five-year term as head of the fund in February, a sign of her relative popularity. Yet analysts said the IMF itself may not share Lagarde’s renown. The fund has long been a symbol of economic integration and the global elite, both of which have faced criticism with the election of nationalist and populist governments in recent years, including that of Donald Trump in the United States. Trump is expected to confront the question of whether to increase funding for the IMF, a decision that could financially paralyze the institution, Truman said.
Since the financial crisis, the fund has also been associated with belt-tightening initiatives that some argue have worsened recessions and unemployment in struggling economies such as Greece and Spain.
“Obviously this all doesn’t help the IMF, to have . . . people questioning that she was negligent,” said Desmond Lachman, a resident fellow at the American Enterprise Institute. “But I don’t think that’s anywhere near the cause of popular resentment toward the IMF. The IMF is regarded very much as part of the political elite, the establishment. So if you’re at all unhappy in the way in which the economy is performing, the IMF is going to be among the first institutions to be blamed.”
The charges against Lagarde are seen as particularly embarrassing for the IMF, given that her two predecessors both faced unrelated legal charges.
Dominique Strauss-Kahn, IMF chief from 2007 to 2011, resigned after facing charges of sexually assaulting a hotel maid. The charges were later dropped.
Rodrigo Rato, the IMF managing director from 2004 to 2007, was accused of misdealings after he left the fund. Rato is now on trial alongside 64 other bankers over the misuse of funds during his tenure at Bankia, a Spanish bank, from 2010 to 2012.
“To have yet another IMF managing director with legal issues is not good for the organization, but I would stress that hers seem to be of a totally different order,” Lachman said.
Many in France ascribe political motivation to Lagarde’s trial. Some have described it as a way to attack the conservative Sarkozy, whom Lagarde served as finance chief and who was later supported by Tapie.
Others accused the court of being unnecessarily lenient on Lagarde.
The legal case “was also very much a political trial,” said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center.