Christine Lagarde, the managing director of the International Monetary Fund, was found guilty Monday of criminal charges linked to the misuse of public funds during her time as France’s finance minister, a verdict that could force her out of her post.
Lagarde, who began her second five-year term at the IMF in February, will not face any jail time, the judge said. The scandal has overshadowed her work at the fund, to which she was appointed in 2011, after Dominique Strauss-Kahn resigned as managing director when he was accused of having sexually assaulted a maid in a New York City hotel.
The move is likely to destabilize the IMF as it faces a host of thorny issues, including questions over its participation in a multibillion-dollar bailout for Greece and uncertainty about the U.S. role in the organization once Donald Trump becomes president in January.
The verdict was a surprise, after the prosecutor in the trial said last week that the case against her was “very weak” and did not appear to be enough to win a conviction. It is a theme that prosecutors have previously repeated.
The trial revived concerns in France about high-level corruption, shining a spotlight on intimate ties between politicians and businesspeople, and on the large sums that are sometimes used to grease the country’s political wheels.
The case against Lagarde centered on Bernard Tapie, a former entertainer and owner of Adidas who had previously been jailed on corruption charges. Tapie accused the lender Crédit Lyonnais, in which the French state had a stake at the time, of cheating him when it oversaw the sale of his share of the sportswear empire in 1993. Years of costly legal battles ensued.
In 2007, Lagarde sent the dispute to a three-person private arbitration authority that awarded Tapie more than 400 million euros, or $420 million at current exchange rates, in damages and interest, to be paid by the state.
Her critics said that decision was politically tainted, and she was charged with negligence for allowing the arbitration and for then declining to appeal the panel’s verdict.
The trial against Lagarde was just one facet of the scandal — many people associated with it are under investigation, for accusations as varied as embezzlement and organized fraud.
Legal proceedings are expected to begin next year against Stéphane Richard, the chief executive of the French telecommunications giant Orange and the former chief of staff to Lagarde, who said that she had relied on his judgment to send Tapie’s case to arbitration.
Tapie, who has been ordered by a French court in 2015 to repay the full amount with interest after a judge invalidated it, is expected to be called to a separate trial. He is under bankruptcy protection and has not repaid the sum.
Separately, a judge on the arbitration panel that heard Tapie’s case is accused of fraud and is expected to be tried, as is Tapie’s lawyer.
Witnesses at Lagarde’s trial described a system in which influential, wealthy members of the French elite, like Tapie, had easy access to government officials and parlayed those relationships to the advantage of both parties, sometimes at the expense of taxpayers.
Bruno Bézard, a former director of the French Treasury, described “curious relationships” at the Finance Ministry when he worked there with Lagarde, saying that Tapie was often seen walking around the hallways, presumably to visit officials — “which was rather unexpected.”
Bézard, who led a government body overseeing state holdings, including a bank set up to take over Crédit Lyonnais’ bad assets, said Lagarde had ignored repeated warnings from members of his staff not to proceed with arbitration.
“It was the worst of solutions,” he said. “But we quickly learned that a political decision had been made, despite the colossal risks” that the state would have to pay for any damages and interest awarded to Tapie.
Bézard suggested that Lagarde had further erred by not challenging the amount of the payout.
“I was more shocked by the speed with which we gave up on contesting it than by the speed of the arbitration decision,” he said. “Given that the amount was so scandalous, even if we had one chance in 1,000 to win, it should have been done.”
Lagarde testified that she had declined to do so because it could have resulted in a slew of new lawsuits from Tapie and additional costs to the state.
Tapie, a former Socialist who served in the administration of President François Mitterrand in the 1990s, switched political allegiances and in 2007 backed the presidential campaign of Nicolas Sarkozy — the president at the time of the arbitration hearing.
Tapie visited the Élysée Palace, the seat of the French presidency, at least 20 times during Sarkozy’s first two years in office, the French media reported. The businessman is said to have met with Sarkozy and François Fillon, the prime minister at the time and the front-runner in next year’s presidential election.
In July 2007, Tapie met with Richard, Lagarde’s chief of staff, and Claude Guéant, an aide to Sarkozy.
Richard, also a longtime friend of Sarkozy’s, later said that he had paved the way to move the case to arbitration because he left the meeting with the “strong impression” that it is what Guéant favoured.
Richard refused to testify at Lagarde’s trial, citing a parallel criminal inquiry into his role in the events. Guéant was questioned in 2014 as part of a separate investigation into the matter. Both men have denied any wrongdoing.