IMF’s Lagarde guilty, but not punished, in French negligence trial

By Chine Labbé

PARIS (Reuters) – French judges convicted IMF chief Christine Lagarde on Monday of negligence for a state payout made while she served as France’s finance minister in 2008, but imposed no punishment, likely improving chances that she would stay on at the Fund.

The Washington-based International Monetary Fund said its executive board was meeting on Monday to consider the verdict’s implications.

Edwin Truman, a former U.S. Treasury and Federal Reserve international official, said he would be surprised to see the IMF board change course after unwaveringly supporting her for five years as the case progressed through France’s courts.

“I don’t think there’s a situation in which they will force her out,” said Truman, now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s possible she could decide on her own whether the Fund might be better off without her.”

A no-confidence vote would make Lagarde the second consecutive IMF leader to leave amid crisis. Her predecessor, Dominique Strauss Kahn, resigned in 2011 over a sexual assault scandal.

The French government, which controls about 4 percent of the IMF board’s voting power, said it had complete confidence in Lagarde’s ability to carry out her responsibilities.

Lagarde was back on the job in Washington on Monday, phoning Ukrainian President Petro Poroshenko to commend him on a decision to nationalize a troubled bank.

In Monday’s ruling, the judges did not find negligence in Lagarde’s decision to seek an out-of-court settlement with tycoon Bernard Tapie. But they said her failure to contest the award to him of about 400 million euros ($417 million) was negligent, and led to a misuse of public funds.

“The context of the global financial crisis in which Madame Lagarde found herself in should be taken into account,” Martine Ract Madoux, the main judge on the case, said in explaining the absence of any sentence.

She also cited Lagarde’s good reputation and international standing as reasons why the court did not hand down a punishment. The charge against Lagarde could have carried a sentence of up to a year in prison.

Lagarde, whom IMF members reappointed in February, has won respect from global finance leaders for pushing governments to do more to boost economic growth and helping to include China’s yuan in the fund’s currency basket.

Lagarde’s lawyer, Patrick Maisonneuve, said immediately after the ruling that his team would look into appealing the decision. Though an appeal could clear her name, it could also turn out worse for Lagarde since she was not given a sentence.

“Since Madame Lagarde was not sentenced, I wonder about whether to appeal or not to the highest court,” Maisonneuve told reporters outside the court.

Lagarde, who described the case as a five-year ordeal for her, argued in the trial last week that she had acted in good faith, and with the public interest in mind.

She said she had signed off on the arbitration – against the advice of some Finance Ministry officials – to end a costly 15-year-old legal battle between the government and Tapie, a supporter of then-President Nicolas Sarkozy.

The case dates back to when Tapie sued the French state for compensation after selling his stake in sports company Adidas to then state-owned Credit Lyonnais in 1993.

He accused the bank of defrauding him after it resold its stake for a much higher price. With the case stuck in the courts, the two sides agreed to a private settlement and Tapie was awarded a 403 million euro payout, including interest and damages.

The case was only the fifth ever heard by a special French court created in 1993 to try government ministers. The court of 15 judges, including 12 lawmakers, has never handed down a firm prison sentence.

(Additional reporting by David Lawder in Washington; Writing by Leigh Thomas; Editing by Mark Heinrich and Dan Grebler)

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