World News

08.27.14

IMF Chief Lagarde Placed Under Formal Investigation in France

Christine Lagarde is under fire from French judges in a scandal dating back to President Sarkozy—but she denies any wrongdoing and plans to soldier on in Washington.

PARIS, France — Christine Lagarde, one of the world’s most powerful women, has been placed under formal investigation for potential criminal negligence in Paris. The decision in a sinewy corruption inquiry known as the Tapie Affair stems from allegations dating back to 2008, during Lagarde’s tenure as France’s finance minister.

Ever combative in a case that has already dragged on for years, the International Monetary Fund chief revealed the court’s decision herself on Wednesday morning after her fourth hearing before judges investigating the case, a 15-hour marathon grilling on Tuesday. Now poised to return to Washington and brief the IMF’s board, the former French finance minister denies any wrongdoing, claims she will appeal the decision, and says she will not resign.

The latest development nevertheless casts yet another French IMF leader in an embarrassing light. Lagarde, you may recall, extracted her managing director post out of the ashes of Dominique Strauss-Kahn’s flamed-out career, just weeks after her disgraced compatriot, accused of violating a Manhattan chambermaid, stepped down in a letter penned behind bars on Rikers Island.

But the case against Lagarde, 58, is nothing like the showstopper Strauss-Kahn provided. Indeed, the threat of charges in France’s never-ending Tapie case has hung over the silver-maned IMF boss since well before she won the coveted D.C. gig.

The dispute that would become the Tapie Afair began more than 20 years ago, in 1993, when Bernard Tapie, a businessman and former leftist cabinet minister, sold the sporting goods giant Adidas to a consortium led by Crédit Lyonnais, then a state-owned French bank, for €315.5 million. A year later, Crédit Lyonnais turned around and sold the company for more than twice that price, leading Tapie to claim he had been swindled. The disgruntled tycoon sued for damages and the case plodded through French courts for more than a decade, reportedly costing taxpayers €10 million in legal fees alone.

In 2007, after Lagarde was named finance minister under President Nicolas Sarkozy—who was close to the controversial Tapie—she called for the case to go to private arbitration. In 2008, the arbitrators found in Tapie’s favor, awarding him the princely sum of €400 million in compensation.

Lagarde was left to decide whether or not to appeal the decision. Her biographers Cyrille Lachèvre and Marie Visot wrote that Lagarde, a longtime top-flight corporate lawyer who made her name at Baker & McKenzie in Chicago, shut herself away in her office for a full weekend to pore over the case and sound out experts, before ultimately deciding to let the state’s case rest.

If convicted of negligence in this case, Lagarde could face a year in jail and a fine up to €15,000 ($20,000).

In a statement Wednesday, Lagarde appeared to take solace in the notion that suspicions against her now appear to have been downgraded from outright complicity to negligence. Still, she told Agence France-Presse on Wednesday that the decision, by a special court that investigates alleged wrongdoing by members of any French government during their tenure, is “totally without merit” and asked her lawyer to mount an appeal. Five other people have already been placed under formal investigation in the same case through the conventional courts, including Tapie himself and Lagarde’s former chief of staff, Stéphane Richard, now CEO of the French telecom giant Orange.

In France, being placed under formal investigation equates more or less to preliminary charges in the American justice system and does not systematically lead to a trial. Investigating magistrates can later decide to drop the case or they can choose to follow through with a formal criminal charge.

If convicted of negligence in this case, Lagarde could face a year in jail and a fine up to €15,000 ($20,000).

So don’t expect a DSK-style, grizzled perp walk anytime soon. Still, “negligence” wouldn’t be the most flattering qualifier on the résumé of a woman with the world at her feet. And the plodding pace of the French justice system has a way of interfering with career plans, no matter what the ultimate ruling. Just ask Strauss-Kahn. Or, perhaps, Sarkozy.

The former French president, who has made little secret virtually from the moment he left the Elysée Palace in 2012 that he would relish another term, has seen his comeback aspirations burdened by a bewildering mesh of scandals. Last month, Sarkozy was placed under formal investigation for “active corruption” in a case linked indirectly to the Tapie Affair.

An unfettered Lagarde could parlay her stint managing crises in Washington for glittering new adventures. “I think the only job that hasn’t been imagined for me is pope!” she joked to the French daily Le Figaro last spring, as rumors swirled that she might entertain a bid for the presidency of the European Commission.

Lagarde is also enough of a dark horse for France’s 2017 presidential campaign, after her first term as IMF chief wraps up in 2016, that she frequently has to demur when asked if that’s her plan.

Lagarde recently polled at only 4 percent for the 2017 nomination among supporters of her conservative Union for a Popular Movement party, well behind the favorite Sarkozy. But recall that President François Hollande was polling at only 3 percent for his own Socialist Party nomination just a year and a half before he won the 2012 election. And the conservative UMP, riddled with scandal and beset by an abysmal leadership crisis, is no less embroiled in chaos than Hollande’s Socialists were at the time.

Even if Lagarde does decide to forget Paris, she could well seek a second term as IMF managing director, a veritable roving head of state, from 2016 onward. But first, she has more explaining to do.