The International Monetary Fund, already tainted by the attempted rape charges filed against its former managing director, Dominique Strauss-Kahn, is now dealing with fresh troubles involving its newest chief, Christine Lagarde.
On Thursday, a French court launched a criminal investigation into allegations that Lagarde abused her power when she served as France’s finance minister and oversaw a dispute involving multimillion-dollar payouts to a French business tycoon.
The decision by the Court of Justice of the Republic, which investigates actions by senior French government officials, is yet another headache for the IMF, the Washington-based organization that lends money to troubled governments and developing nations.
But legal and political experts cautioned that the controversies surrounding Strauss-Kahn and Lagarde are hardly the same in their levels of severity.
The allegations against Lagarde center around her role in awarding about $400 million to Bernard Tapie, a friend of French President Nicolas Sarkozy. The court decided Thursday to investigate whether Lagarde overstepped her authority when she allowed a private arbitration panel to settle a legal dispute between Tapie and the Credit Lyonnaise bank a few years ago.
Tapie had sued Credit Lyonnaise because he believed the bank had bilked him out of millions of dollars when it sold his ownership stake of Adidas in the 1990s. The arbitration panel awarded Tapie a multimillion-dollar settlement, and critics were outraged.
The IMF declined to make Lagarde available for an interview. Her attorney did not immediately return an e-mail requesting comment.
Lagarde has made previous statements to reporters defending her decisions, dismissing the allegations as part of a political campaign against Sarkozy, who faces an upcoming reelection bid.
In a statement, the IMF said it would not be “appropriate” to comment on an ongoing judicial case, adding only that its executive board is “confident that she will be able to effectively carry out her duties as managing director.”
The IMF board could not have been too surprised by Thursday’s court ruling. Its members selected Lagarde — who aggressively lobbied for the position — knowing that she could face such an investigation.
“I have been told by at least one IMF board member that she was asked about the case in a private session [before her selection], and it’s my assumption that she was able to convince the board that if it went to this stage, it wouldn’t take much of her time away from job,” said Edwin M. Truman, a senior fellow at the Peterson Institute for International Economics and a former assistant secretary of the U.S. Treasury.
At issue is whether Lagarde abused her power when she permitted private arbitration and when she chose not to appeal Tapie’s outsized settlement.
“She basically agreed to take Tapie’s case out of the public court system . . . believing it would be more efficient,” said Christopher Mesnooh, a partner specializing in international business law at Field Fisher Waterhouse in Paris who has been following the case.
The court’s investigation into Lagarde’s actions could last months, if not longer, experts said. If a trial results from the inquiry, and if she were convicted, she could face up to 10 years in prison.
“Does this interfere with her duties? It shouldn’t,” Mesnooh said. “At the moment, it’s just at an investigation, not a formal trial. She should be able to serve out her term without any particular problem.”