Why The French Inquiry Of Christine Lagarde Is Unlikely To Threaten Her IMF Job

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International Monetary Fund Managing Director Christine Lagarde arrives in the lobby at IMF heaquarters for her first day on the job July 5, 2011, in Washington, DC. (Photo: Paul J. Richards / AFP / Getty Images)

Does Friday’s decision by French justice officials to open a legal investigation into abuse of power allegations against Christine Lagarde mean the International Monetary Fund head risks losing her job less than a month after succeeding the disgraced Dominique Strauss-Kahn? The short answer is no, and for many reasons. Still, that doesn’t mean the inquiry won’t create unwanted trouble for the generally admired Lagarde—and may raise even peskier questions for her former boss, President Nicolas Sarkozy.

Wednesday’s ruling by a commission of France’s Court of Justice arises from months of legal deliberation over whether a formal judicial investigation is merited to examine claims Lagarde over-stepped her authority while serving as French Economy Minister.  Detractors contest Lagarde’s 2008 decision to allow an independent commission arbitrate the interminable campaign by former politician and businessman Bernard Tapie to recover a fortune he says he was swindled out of in the 1990s by what was then state-owned bank Crédit Lyonnais. When Lagarde made the contested move to let a wise-man’s committee deliver a final, binding judgment on Tapie’s complaint—and thereby definitively end his dogged legal offensive against the state—the case was pending final appeal of its earlier defeat in France’s highest court. Lagarde’s perhaps curious intervention just as Tapie appeared to have unsuccessfully exhausted his legal options isn’t the only reason critics have pressed an investigation into her decision: the independent committee subsequently awarded Tapie over $400 million in compensation from tax payer coffers he’d been denied up till then. Just as vexing, Lagarde did not question the ruling, and made efforts for the settlement to be swiftly paid to Tapie.  As a result, some observers smell a rat–and want the entire affair investigated.

So why isn’t this a legal string of tin cans tied to Lagarde’s tail whose deafening clatter (not to mention underlying suspicion of wrong-doing) that will make her continued position atop the IMF untenable?

Because first off, the inquiry is only the first step in French legal proceedings that will take years to wind along—and may well wind up clearing her even before it ends. For now, Lagarde isn’t even officially a suspect in the case examining whether any legal missteps were made anywhere first, and by whom after that. Meanwhile, even if investigating magistrates do  find cause for prosecuting a case against Lagarde on evidence she over-stepped her authority in the Tapie affair, they’d still have to win that in court years down the line to prove she was guilty of anything. For her part, Lagarde continues to deny any excess or error in her decision—a declaration of innocence that gets some support from Lagarde’s reputation for rectitude. She’s also getting backing from IMF officials who also seem to feel there’s nothing particularly pressing, immediate, or urgent about the risks the inquiry poses for Lagarde or her IMF post. That support isn’t surprising given the careful examination and analysis the IMF made of the looming French decision whether to launch an inquiry or not before appointing Lagarde–as well as the IMF’s consideration of the actual claims foes are leveling at her.

Indeed, the complaints about her decision on Tapie—aired mostly by Socialist opponents and also certain centrist politicians defending French taxpayers—don’t suggest Lagarde acted in self-interest or for personal enrichment. Instead they contend she never should have outsourced the Tapie case to independent arbitrators after  the state had repeatedly defended itself from his claims in court. Her move raised further question against  written evidence some of her own advisors counseled against entrusting Tapie’s suit to arbitration. Meanwhile, because her decision resulted with Tapie walking off with over $400 million in state funds that French courts routinely denied him, Lagarde’s intervention is being called misguided at best—and perhaps a criminal abuse of her government position at worst. Still, even worst-case scenarios in the case involve fairly limited consequences for Lagarde beyond a conviction for over-stepping the limitations of her ministerial power, and whatever knock-on impact that could have at the IMF should she still be there by then.

So why the drive to unleash the law on her? To begin with, few people are thrilled at seeing so much public money handed over to the incomparable Tapie. A larger-than-life figure equally loved and hated in France, Tapie used his meteoric rise in business to launch himself into politics, eventually occupying a cabinet post under Socialist President François Mitterrand. During his ascent, the freewheeling Tapie compiled a fortune by buying and selling companies at a rapid clip—often dogged by suspicion and accusation he cut corners, bent rules, and broke legal speed limits in pursuing success. His fall was therefore just as spectacular—and public—as his rise.

Eventually over-extended by far too many loans to finance his deals, Tapie was forced to hire his creditor bank Crédit Lyonnais to handle the 1993 sale of his prized asset, sporting good giant Adidas. Hard pressed by looming (and soon declared) bankruptcy, Tapie agreed to the terms of a Crédit Lyonnais sale of Adidas. But when the bank soon sold the company to another buyer for much more money than Tapie pocketed, he began a nearly two-decade legal charge based on claims he’d been swindled. His failure to win his case in court never weakened his determination to keep on battling–a fettle he also demonstrated when similar frustration began permeating his life elsewhere. Toasted as a national hero after his Olympique Marseille soccer team won France its first (and only) Champions’ League title in 1992, evidence of bribery and match rigging eventually led to Tapie’s conviction and prison jolt for corruption. Even then, Tapie refused to acknowledge defeat. Confronted during his trial with irrefutable evidence of having confabulated while trying to prove his innocence, the unflappable Tapie famously explained to the court “I lied in good faith”. He later reclaimed command of Marseille, nearly ruining the club during a tenure that saw corruption charges of team officials proliferated.

Given the rather notorious nature of Tapie’s past, few people were happy at seeing public money used to compensate his earlier business misfortunes—especially in light of the court rulings against him. There are other reasons why some begrudge Tapie’s changed luck. His past habit of  swapping favors and influence with his VIP pals in politics and business—frequently at the same time—now leave some observers convinced Tapie could never have transformed his seemingly lost legal crusade against the state into victorious private arbitration unless he’d had an assist in the highest places. Which, ultimately, is behind Wednesday’s ruling to launch an inquiry about Lagarde’s decision.

But while she’ll be a focus of that inquiry, Lagarde is less in the cross hairs of suspicion than it may appear. She just doesn’t make for a good Tapie homie. Indeed, it’s hard to imagine Tapie getting any kind of under-the-table, dirty deal help from Lagarde—a cultivated, sophisticated, and highly educated trained lawyer and former business executive who is as unlike Tapie as imaginable. That is why some of her foes are aiming at Lagarde in the hopes of hitting a higher target: Sarkozy. Even some of those who led the push for an investigation against Lagarde privately admit it’s inconceivable she’d have willingly stepped in to help out someone like Tapie—unless the order hadn’t come from above her.

And just why would the Elysée allegedly intervene that way? Observers note the former leftist Tapie surprisingly threw all his weight behind the very conservative Sarkozy’s 2007 presidential campaign–lending it a populist (albeit tarnished) voice still popular among many working class voters, and a formidable political street brawler who’d defected from Socialist ranks. Cynics contend Sarkozy may have ordered Lagarde to take the steps necessary to help Tapie win his case and recover his money as a thank you gift for that support—or as the compensation in negotiated deal for Tapie’s electoral services rendered. Those suggestions of a nefarious quid pro quo are uniquely speculative, and thus far provide no real evidence for support. Still, some argue the idea of Sarkozy pulling strings to make things happen—but retain a distance in case things go wrong—is far from fanciful.

In an article in Wednesday’s Le Monde, law professor Hubert Lesaffre not only argues it’s unthinkable Lagarde could have taken the bold step of moving Tapie’s case from the courts to private arbitration without getting the approval of the president; he speculates the move was in fact handed down to Lagarde from the Elysée as part of what he details as the long effort by Sarkozy to concentrate all major decision-making power in the presidency, and reduce government members to executors of his orders. As such, Lasaffre maintains, Sarkozy has created a system in which he calls all the major shots in France, yet uses officials as proxies who will be held responsible if anything goes wrong.  The problem with that theory is there’s no more proof supporting it at this point than there is evidence Lagarde decided to over-step her authority with the goal of making Tapie a millionaire at taxpayer expense. Still, allegations of both will get stronger legs now that an official inquiry into the decision has been launched.

That, at term, may require Lagarde to face some pointed questioning about her judgment—though her backers say that won’t involve anything capable of imperiling her IMF job. That’s less the case of Sarkozy, who may face no official legal scrutiny over the Tapie sage—but will hear allegations of his connivance in the affair rattling behind him as he heads towards his May, 2012 re-election bid.