The Cable

IMF Chief Christine Lagarde Found Guilty of Negligence

The Fund’s top official won’t be fined or jailed, but she may lose her job -- and the IMF may lose more than that.

lagarde

A French court on Monday found Christine Lagarde, managing director of the International Monetary Fund, guilty of negligence for misusing public funds during her tenure as French Minister of Finance, a position she held from 2007 to 2011. Though she will not face jail time or be fined, the ruling could push Lagarde out of her job at the IMF, adding instability to an institution already rocked by scandal and economic uncertainty.

In a statement, Gerry Rice, a spokesman for the IMF, said the fund’s executive board “has met on previous occasions to consider developments related to the legal proceedings in France. It is expected that the board will meet again shortly to consider the most recent developments.”

Lagarde has long maintained that the charges, dealing with her alleged role in the 2008 arbitration between the government of former French president Nicolas Sarkozy and French businessman Bernard Tapie, are politically motivated. Lagarde was minister under Sarkozy, while the investigation was opened against her by the Socialist administration of Francois Hollande in 2014.

In 1993, Tapie, the owner of sportswear firm Adidas, accused Credit Lyonnais, a partially state-owned lender, of defrauding him by purposefully undervaluing the shares of a firm he sold. Tapie fought Credit Lyonnais in court until 2007. That same year, Lagarde became France’s finance minister, and agreed to allow the matter to be settled in arbitration, rather than in court. The next year, in the arbitration proceeding, Tapie was awarded more than 400 million euros from state coffers. Tapie, a long-time leftist-leaning businessman, then backed Sarkozy’s center-right party. Courts later overturned the decision, and Tapie never did receive his money.

In July, France’s Court of Cassation said that, though Lagarde had no relationship to anyone in the arbitration and had not influenced the decision, simply allowing arbitration to proceed showed a “haste and lightness that constitute grave negligence on the part of a minister.”

The French Court of Justice of the Republic agreed with the Court of Cassation, brushing aside Lagarde’s dismissal of the scandal and her Friday assurance to the court that she had acted in good faith.

Lagarde’s lawyer,  Patrick Maisonneuve, said she would consider appealing the ruling; rulings from the Court of Justice of the Republic are not subject to appeal except, apparently, in cases of procedural error. Maisonneuve said his reaction to the verdict is “mixed.”

“On the one hand, she is found responsible, but given the circumstances, given the responsibilities that Ms. Lagarde had at the time — in 2008, we were in a major economic crisis — the court decided that it would not sentence Ms. Lagarde to anything,” he said, according to the New York Times.

The verdict comes at a tricky time for the fund. Lagarde, who was appointed for a second term in February, is a figure of continuity in a time of ever-erupting, ever-evolving challenges. Like the World Bank, the IMF was created near the end of World War II to stabilize the global economy, and embedded a leading role for Western economies at the helm of global policymaking. Emerging markets, especially China and India, have for years pressed for a greater say in the IMF and similar bodies, and have only recently made progress, in part because of Lagarde’s backing of their demands for greater representation and reform.

And the IMF has its hands full with some simmering crises. The IMF’s continued participation in the Greek bailout remains a question; Lagarde has long maintained the the emergency-lending bank would not participate in the rescue program without debt relief, something Germany, Greece’s largest creditor, has refused. It is also propping up Ukraine with an ongoing $17.5 billion bailout package but is struggling to wrest political and economic reform out of Kiev.

And the IMF’s future after Donald Trump’s election is also unknown, given the frontal clash between the Fund’s orthodox economic prescriptions and Trump’s throwback protectionism. In the fund’s latest World Economic Outlook, it warned of the potential costs of raising tariffs and other trade barriers, as Trump has proposed.

“Once a tariff has been imposed on a country’s exports, it is in that country’s best interest to retaliate, and when it does, both countries end up worse off,” IMF economists wrote.

Lagarde isn’t the first IMF director to be embroiled in scandal. In 2011, Lagarde’s predecessor, Dominique Strauss-Kahn, resigned after a New York hotel employee accused him of sexual assault. The charges against Strauss-Kahn were later dropped, but the incident remains an embarrassment for French politics.

FP’s Robbie Gramer contributed to this post.

Photo credit: Kevork Djansezian/Getty Images for Glamour

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