IMF Head Christine Lagarde Convicted in French Negligence Trial

EghtesadOnline: Christine Lagarde was convicted of negligence by a Paris court over her handling of a multimillion-euro dispute during her time as France’s finance minister nearly a decade ago, raising questions about her role as head of the International Monetary Fund.

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19 December 2016

The 60-year-old managing director of the IMF won’t face a fine or prison term, Judge Martine Ract-Madoux said Monday. The judges on the Cour de Justice de la Republique, which specializes in ministerial misconduct, said that Lagarde should have done more to overturn a 285 million-euro ($300 million) payout to a businessman in an arbitration case, Bloomberg reported.

Lagarde’s decision not to seek to annul the arbitration award “isn’t just an unfortunate political choice,” it’s also tantamount to negligence, the court ruled.

The trial has been an ongoing distraction to Lagarde’s duties at the IMF, which was on the front lines of the effort to combat the global financial crisis and provides billions of dollars in loans to countries at risk of default. The Washington-based institution said it would meet shortly to consider the verdict.

“Of course, Lagarde has been set back by this,” Michael Fuchs, a deputy parliamentary caucus leader of German Chancellor Angela Merkel’s party, said in an interview. “What the consequences will be is hard to say.”

Patrick Maisonneuve, Lagarde’s lawyer, said the court “noted that we were in a particularly difficult economic and political context that truly ate up a lot of the minister’s time.” The Cour de Justice also noted her “international reputation” to explain why she didn’t deserve a penalty or a sentence. Still, Maisonneuve said he couldn’t understand the reasoning behind the verdict.

Lagarde was diligent and, before deciding not to seek an annulment, “she requested opinions from lawyers -- and that’s where I don’t understand the court’s decision,” said Maisonneuve. “She always acted in the general interest, with knowledge of the facts.”

Lagarde, who didn’t attend Monday’s hearing, was cleared of another count related to her initial decision to enter into the arbitration agreement.

The conviction puts the IMF in an awkward position as Lagarde is the second straight managing director of the fund to run into legal troubles. Her predecessor, Dominique Strauss-Kahn, resigned in 2011 amid allegations that he sexually assaulted a maid at a New York hotel.

1993 Adidas Sale

The Paris trial looked into how Lagarde handled a dispute between former state-owned bank Credit Lyonnais and businessman Bernard Tapie over the 1993 sale of Adidas AG. Lagarde allowed the disagreement to go to arbitration -- at the start of the financial crisis -- and then didn’t appeal the award. The subsequent government payout was cut to zero last year after doubts were cast on the impartiality of one of the three arbitrators.

Lagarde didn’t fully examine the award, the “violent wording” of which could “only have led the minister” to seek to overturn it in court, Ract-Madoux said. “Overall, Lagarde was negligent in seeking information” to guide her views about a bid for annulment, the court president said.

Lagarde should have sought proper explanations from her staff after learning that the Tapie award included -- against her own wishes -- 45 million euros in damages, Ract-Madoux said. Her decision not to seek to annul the award “permitted the Tapie couple to embezzle 45 million euros.”

Lagarde’s conviction “is problematic for someone who heads an institution that promotes” the good use of public funds “throughout the world,” said Stephane Bonifassi, a criminal lawyer in Paris, who’s not involved in the case.

On the second day of the trial earlier this month, Lagarde told the court she’d relied on her then chief of staff, Stephane Richard, to screen thousands of documents and provide advice on using arbitration in the dispute.

Richard, now Orange SA’s chief executive officer, refused to testify during the trial, citing a parallel criminal probe that allowed him to remain silent. He has been charged by French investigative magistrates of hiding key elements in the Tapie case from Lagarde, including administrative notes that opposed arbitration in 2007.

Richard’s lawyer Jean-Etienne Giamarchi said the subsequent decision not to seek an annulment in 2008 doesn’t concern his client given that Lagarde personally studied the file.