French prosecutors were grilling IMF chief Christine Lagarde in a Paris court on Thursday as they seek to determine whether she should be charged over a state payout to disgraced tycoon Bernard Tapie during her time as finance minister.
Lagarde has downplayed the investigation,
but the stakes of the probe are huge for both her and the International Monetary Fund. Since March, the IMF has not commented on the affair but the board has reiterated its "confidence" in Lagarde.
Criminal charges against Lagarde, 57, would mark the second straight scandal for an IMF chief, after her predecessor Dominique Strauss-Kahn, also from France, resigned in disgrace over an alleged assault on a New York hotel maid.
Her court appearance comes a day after Lagarde, the first woman to run an organisation considered the pillar of the international financial system, was named as the world's seventh most powerful woman by Forbes magazine.
Known for both intellectual prowess and elegance, Lagarde smiled as she arrived at the courthouse at an upscale Paris neighbourhood, greeting the several dozen reporters outside with, "It's a pleasure to see you again," before entering the building.
The Court of Justice of the Republic (CJR), which probes cases of ministerial misconduct, is seeking an explanation of her 2007 handling of a row that resulted in €400 million ($515 million) being paid to Tapie.
Tapie is a former politician and controversial business figure who went to prison for match-fixing during his time as president of French football club Olympique de Marseille.
Prosecutors working for the CJR suspect he received favourable treatment in return for supporting Nicolas Sarkozy in the 2007 presidential election.
They have suggested Lagarde - who at the time was finance minister - was partly responsible for "numerous anomalies and irregularities" which could lead to charges for complicity in fraud and misappropriation of public funds.
The investigation centres on her 2007 move to ask a panel of judges to arbitrate in a dispute between Tapie and Credit Lyonnais, the collapsed, partly state-owned bank, over his 1993 sale of sports group Adidas.
Tapie had accused Credit Lyonnais of defrauding him by consciously undervaluing Adidas at the time of the sale and argued that the state, as the former principal shareholder in the bank, should compensate him.
His arguments were upheld by the arbitration panel but critics claimed the state should not have taken the risk of being forced to pay compensation to a convicted criminal who, as he was bankrupt at the time, would not have been able to pursue the case through the courts.
The payment Tapie received enabled him to clear his huge debts and tax liabilities and, according to media reports, left him with €20-40 million which he has used to relaunch his business career.
Tapie on Thursday said he "is not at all worried".
"When an abritrage is conducted, it is done according to rules," he told Europe 1 radio. "If there had been something questionable, it would have been known a long time ago."
Lagarde too has appeared unfazed. "There's nothing new under the sun," she said last month in Washington. "Ever since 2011 I had known very well that I will be heard by the investigative commission of the Cour de Justice."
Lagarde has said the arbitration was necessary to put an end to a costly dispute, and has always denied having acted under orders from Sarkozy.
Lagarde would not automatically be forced to resign as IMF chief if she is charged, but such a ruling would certainly weaken her position and undermine her future ambitions on the world stage.
Her contract requires that she maintain the integrity of the office and "strive to avoid even the appearance of impropriety in your conduct".
French finance minister Pierre Moscovici said on Thursday that Lagarde "retains the full confidence of French authorities and myself".
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