By Henry Samuel, Paris, and AFP
Telegraph
27 Aug 2014

Christine Lagarde, the International Monetary Fund chief, has announced that she is under formal investigation in France for negligence in a multimillion-euro fraud and corruption case, but has ruled out stepping down from IMF post.

The shock announcement came after the world’s 5th most powerful woman according to Forbes was quizzed over her handling of a €405 million (£322m) state payout made to Bernard Tapie, a disgraced tycoon, in 2008 when she was France’s finance minister.

Judges at France’s Court of Justice of the Republic, a special court that probes cases of ministerial misconduct, suspect that Mr Tapie received favourable treatment in return for supporting Nicolas Sarkozy in the 2007 presidential election that he ended up winning.

Until now they had given Miss Lagarde a more neutral “special witness” status, which obliged her to return for questioning when asked by the court.

After questioning Miss Lagarde this week for a fourth time, they opted to place her under official investigation – one step short of being charged – suggesting they believe there could be sufficient evidence to send her to trial.

Charges of negligence carry a maximum sentence of a year in prison and a 15,000-euro fine.

Reacting to the shock development, Miss Lagarde, said: “I have instructed my lawyer to appeal this decision which I consider totally without merit.

“I return back to Washington where I will indeed brief my board,” she told AFP.

The scandal has threatened to expose an alleged system of cronyism at the highest level of the French state during the Sarkozy presidency.

Investigators are examining whether the decision to pay the astronomical sum was deliberately rigged in Mr Tapie’s favour. For decades, he had fought the French state through the courts, alleging that the formerly state-owned bank Crédit Lyonnais had swindled him while handling his company’s sale of the sports brand, Adidas. But Mr Sarkozy’s government decided to end the court battle and opt instead for private arbitration in 2008.

After tax and costs, Mr Tapie is thought to have personally pocketed around 200 million euros of the payout, all at the taxpayer’s expense.

The judges are seeking to gauge the extent of Miss Lagarde’s involvement in the decision of the special, three-member arbitration panel to give Mr Tapie the money. They also want to know why she failed to appeal the panel’s ruling.

Asked whether she intended to resign from the IMF, she responded: “No.”

“After three years of procedure the only surviving allegation is that through inattention I may have failed to block the arbitration that put an end to the long standing Tapie litigation,” she told AFP.

The case is politically embarrassing for France, as Miss Lagarde’s French predecessor at the helm of the IMF also got into legal hot water. Dominique Strauss-Kahn, another former French finance minister, was forced to resign in May 2011 following charges – later dropped – of attempting to rape a New York hotel maid.

Wary of further embarrassment, the Fund wrote tougher ethical guidelines into Miss Lagarde’s contract.

The IMF chief denies any wrongdoing, recently saying that she “always acted in the interest of the country and in accordance with the law”.

Five people have been charged in the case, including Stéphane Richard, then Lagarde’s chief of staff, now boss of telecoms giant Orange.

Mr Richard has consistently maintained that Miss Lagarde was fully aware of all decisions made in the case.

“She is the political authority who took all the decisions,” he reportedly told detectives. “She had all the necessary elements at her disposal to make her mind up.”

Mr Tapie, who faces charges of “organised fraud”, claims that he and Mr Sarkozy are the victims of a “plot” to destroy the former French president’s comeback.

“They tried to pin it on him. He’s the one targeted in these moves,” has said Mr Tapie – a controversial self-made businessman who once owned Olympique de Marseille football club but then served time in jail for match fixing.

Reacting to his claims, Élisabeth Guigou, the former Socialist justice minister, said: “We must get to the end of this affair to see whether French taxpayers have been despoiled. Whether or not it was orchestrated by the Elysée and by Mr Sarkozy is a legitimate question,” she added.