A French court ordered an investigation on Thursday into possible misconduct by IMF head Christine Lagarde when, as finance minister, she approved a settlement to a businessman friend of President Nicolas Sarkozy.
The investigation will get underway at once into Lagarde’s alleged complicity in the misuse of public funds in her approval of a 285-million-euro ($407-million) arbitration payout to Bernard Tapie in 2008, the court’s prosecutor said.
Ms. Lagarde has denied any misconduct and the Washington-based International Monetary Fund, where she started as managing director last month, said its board was confident she would be able to effectively carry out her duties despite the investigation.
Analysts said the investigation, which could run for months or even years, should not immediately hurt the credibility Ms. Lagarde has built up around the world in her years as finance minister.
Yet it will be an awkward blight on the Frenchwoman’s IMF debut as she tries to turn the page from her predecessor Dominique Strauss-Kahn's exit from the post in a sex assault scandal.
An IMF board official told Reuters anonymously that the news was “not unexpected but still disturbing.”
“Today’s news is politically unhelpful but on the other hand I would be surprised if this triggered a dynamic making this a major issue and affecting Ms. Lagarde’s stewardship at this stage,” said Thomas Klau of the European Council on Foreign Affairs.
“There is obviously no direct link between her responsibilities at the IMF and the issue under review, which goes back to her early days as finance minister. That said, any appearance of impropriety of any kind has become potentially more virulent as a result of the Strauss-Kahn affair,” he said.
There has never been any question that Ms. Lagarde, who won wide international respect as finance minister and is a former high-flying lawyer, benefited personally from the affair.
Ms. Lagarde’s lawyer said the investigation would be “in no way incompatible” with her functions at the global lender, whose board of member countries is on its August recess.
France’s public prosecutor had recommended the Court of Justice of the Republic—a special tribunal that can judge ministers—order an investigation, following a request from opposition Socialist Party politicians.
The court had been due to rule in June, as Ms. Lagarde was bidding for the IMF job, but asked for more time to weigh its decision.
“We have come out in favor of an investigation concerning Madame Lagarde,” court official Gerard Palisse said, after the court met for several hours to examine the results of a preliminary judicial review.
Yves Repiquet, a lawyer for Ms. Lagarde, told France’s BFM TV that Ms. Lagarde had received the news calmly and even with relief, after months of speculation over whether a complaint brought by the Socialists would end up in an investigation.
“This procedure is in no way incompatible with the current functions of the managing director of the IMF,” Mr. Repiquet said in a statement.
He said Ms. Lagarde had acted perfectly legally in letting the Tapie case be settled by arbitration.
Ms. Lagarde, 55, is tasked with drawing a line under the Strauss-Kahn scandal, but she now faces the discomfort of being called for lengthy questioning by investigating judges.
“An investigation could take a very long time, one could expect it to take several years as there would be a lot of witnesses to interview, among them Madame Lagarde, who could also be investigated as a suspect,” Virginie Duval, general secretary of France’s USM magistrates union, told Reuters television.
Ms. Lagarde is accused of overruling objections from advisers to settle the case with Tapie, who said Credit Lyonnais bank had defrauded him in the 1993 sale of his stake in sports clothing group Adidas.