IMF chief grilled in Paris court over 2007 payout scandal

PARIS - Agence France-Presse

Head of the International Monetary Fund (IMF), France's Christine Lagarde, smiles as she arrives at the French Republic Justice Court, on May 23, 2013 in Paris, for a hearing to determine whether Lagarde should be charged over the Tapie case for complicity in fraud and misappropriation of public funds when she was French finance minister in 2007-2008. AFP PHOTO / LIONEL BONAVENTURE

French prosecutors grilled IMF chief Christine Lagarde in a Paris court on Thursday to decide if she should be charged over a state payout to a disgraced tycoon during her time as finance minister.

Lagarde has downplayed the investigation, but the stakes are huge for both her and the International Monetary Fund. Since March, the IMF has not commented on the affair but the board has reiterated its "confidence" in her.

French Finance Minister Pierre Moscovici told AFP that Lagarde "retains the full confidence of French authorities and myself".

But government spokeswoman Najat Vallaud-Belkacem said she thought Lagarde's days at the IMF were over if she were charged.

Criminal charges against Lagarde, 57, would mark the second straight scandal for an IMF chief, after her predecessor Dominique Strauss-Kahn, also from France, resigned in disgrace over an alleged assault on a New York hotel maid.

Her court appearance comes a day after Lagarde, the first woman to run an organisation considered the pillar of the international financial system, was named the world's seventh most powerful woman by Forbes magazine.

Known for both her intellectual prowess and elegance, Lagarde smiled as she arrived at the courthouse in an upscale Paris neighbourhood, greeting the several dozen reporters outside with "It's a pleasure to see you again" before entering the building.

The Court of Justice of the Republic (CJR), which probes cases of ministerial misconduct, is seeking an explanation of her 2007 handling of a row that resulted in 400 million euros ($515 million) being paid to Bernard Tapie.

The former politician and controversial business figure went to prison for match-fixing during his time as president of French football club Olympique de Marseille.

Prosecutors working for the CJR suspect he received favourable treatment in return for supporting Nicolas Sarkozy in the 2007 presidential election.

They have suggested Lagarde -- who at the time was finance minister -- was partly responsible for "numerous anomalies and irregularities" which could lead to charges for complicity in fraud and misappropriation of public funds.

The investigation centres on her 2007 move to ask a panel of judges to arbitrate in a dispute between Tapie and Credit Lyonnais, the collapsed, partly state-owned bank, over his 1993 sale of sports group Adidas.

Tapie had accused Credit Lyonnais of defrauding him by consciously undervaluing Adidas at the time of the sale and argued that the state, as the former principal shareholder in the bank, should compensate him.

His arguments were upheld by the arbitration panel but critics claimed the state should not have taken the risk of being forced to pay compensation to a convicted criminal who, as he was bankrupt at the time, would not have been able to pursue the case through the courts.

The payment Tapie received enabled him to clear his huge debts and tax liabilities and, according to media reports, left him with 20 million to 40 million euros which he has used to relaunch his business career.

Tapie, who recently purchased a newspaper group in the south of France, said he "is not at all worried.

"When an arbitrage is conducted, it is done according to rules," he told Europe 1 radio. "If there had been something questionable, it would have been known a long time ago." Lagarde has said the arbitration was necessary to put an end to a costly dispute, and has always denied having acted under orders from Sarkozy.

Lagarde, who was France's first female finance minister from 2007 to 2011 after rising to the executive board of US legal giant Baker & McKenzie, would not automatically be forced to resign as IMF chief if she is charged.

But such a ruling would certainly weaken her position and undermine her future ambitions on the world stage.

French government spokeswoman Vallaud-Belkacem told BFMTV that "objectively speaking and knowing the IMF... I tend to think that if she is charged, they will without doubt ask her to quit her post".