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Updated: August 4, 2011 22:24 IST

IMF chief Lagarde faces investigation

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Christine Lagarde
Christine Lagarde

Over payment of compensation to controversial businessman

A French court gave the green light on Thursday for an embezzlement investigation targeting new International Monetary Fund chief Christine Lagarde, in a case her lawyer branded as politically motivated.

Ms. Lagarde, who took up her new post last month, has denied any wrongdoing or illegality in a case which resulted in a big compensation payment for a private businessman out of public funds in 2008 when she was France's Finance Minister.

The IMF's executive board immediately expressed confidence in the 55-year-old, whose immediate predecessor at the organisation, Dominique Strauss-Kahn, was forced to resign after he was accused of attempted rape.

Ms. Lagarde has been accused of exceeding her authority by cutting short a legal battle between flamboyant French tycoon Bernard Tapie and the formerly state-owned bank Credit Lyonnais by sending it to private arbitration.

The arbitration panel awarded compensation to Mr. Tapie, a supporter of Ms. Lagarde's then boss, President Nicolas Sarkozy, in the case, linked to the bank's alleged mishandling of Mr. Tapie's sale of sportswear brand Adidas.

Gerard Palisse, the presiding judge at the Court of Justice of the Republic, said the tribunal had approved “a judicial inquiry concerning Mrs Lagarde,” in which magistrates will investigate her role in settling the financial dispute. Such an inquiry can lead to criminal charges, in this case punishable by up to 10 years in prison and a fine of €150,000 ($212,000).

State prosecutors in a statement detailed the charges as “embezzlement of public funds” and “complicity” in falsifying documents, and said prosecutor Cecile Petit would formally request the probe “in the coming days”.

Ms. Lagarde's lawyer Yves Repiquet said the case was driven by “suspicion abusively cast on Christine Lagarde by a handful of opposition Members of Parliament for political ends” and said he expected the case to be dismissed. Mr. Repiquet also insisted the inquiry was “in no way incompatible” with Ms. Lagarde's new role as managing director of the IMF.

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