Sun | Aug 20, 2017

Lagarde found guilty of negligence in arbitration award

Published:Tuesday | December 20, 2016 | 12:00 AM

The International Monetary Fund's managing director was convicted Monday of negligence by a special French court for her role in a contentious and generous arbitration award in 2008 to a politically connected tycoon.

But Christine Lagarde, who was France's finance minister at the time, was spared jail time and a criminal record. She had risked a year of imprisonment and a fine.

The guilty verdict, even without punishment, tarnishes Lagarde's impressive career as one of the most powerful women in world finance. It raised immediate doubts about whether the IMF's first female managing director will be able to continue in that job she has held since 2011.

The Washington, DC-based IMF said after Monday's verdict that its executive board would meet soon "to consider the most recent developments".

The case revolves around a £403-million ($425-million) arbitration deal given to tycoon Bernard Tapie in 2008 over the botched sale of sportswear maker Adidas in the 1990s. The amount prompted indignation in France.

Civil courts have since quashed the unusually generous award, declared the arbitration process and deal fraudulent and ordered Tapie to pay the money back.

In deciding not to sentence Lagarde, the court noted that the award to Tapie has since been annulled, sparing damage to the public purse. It also noted, by way of explaining the lack of a sentence, that Lagarde was caught up at the time in the storm of financial crisis that engulfed the global economy.

The court also said that Lagarde's "personality and national and international reputation" counted in her favour.

The Court of Justice of the Republic, made up of three judges and 12 parliamentarians, tries cases concerning ministers for alleged crimes while in office.

Lagarde, not present for the verdict, maintained her innocence through the week-long trial. The prosecutor had asked for an acquittal in the case, which began in 2011.

Christopher Baker, one of Lagarde's lawyers, wouldn't speculate on any potential effect of the verdict on Lagarde's high-flying career. A lawyer herself, she served as French finance minister from 2007 to 2011, when she took the job as head of the IMF.

"There is no sentence, which means there's no record of this," he told The Associated Press. "The result of this last five years is nothing, which leaves us in kind of a complicated and strange situation."

The special court acquitted Lagarde of negligence in her original decision to put the Tapie case to arbitration. But it found her guilty in a subsequent decision not to contest the amount of the arbitration award.

The court's presiding judge, in reading the verdict, said Lagarde should have asked her aides and others for more information about the "shocking arbitration award" that included a tax-free payment of £45 million in damages to Tapie, which the court described as fraudulent.

A MASSIVE PAYOUT

Investigating judges had alleged that Lagarde committed a series of serious errors in the award to Tapie.

The amount awarded to end years of legal wrangling with Tapie over the sale in the 1990s of his majority stake in sportswear giant Adidas prompted indignation in France. It also raised questions about whether Tapie benefited from his political connections, including with then President Nicolas Sarkozy, Lagarde's boss when she was his finance minister.

The legal battle between Tapie and Credit Lyonnais over the public bank's sale of his Adidas stake was still unresolved when Lagarde took over at the Finance Ministry in 2007. The first woman in that job, she oversaw France's finances as the global economy plunged into its worst crisis since the Great Depression of the 1930s.

Lagarde ordered that the dispute be settled through a private arbitration panel, instead of regular courts against the advice of her own services. The decision led to the massive payout to Tapie from public funds.

Soon after the award, investigators suspected the whole process was rigged in favour of the magnate.

In 2013, Tapie, his lawyer, one of the arbitrators and Lagarde's chief of staff at the ministry, Stephane Richard, now the CEO of the telecoms company Orange, were charged with gang-related fraud. Lagarde's Paris home was searched by police. However, that case is separate from Lagarde's legal woes.

Tapie was handed another charge of misappropriation of funds. However, in 2015, a court quashed the arbitration deal, and then ordered Tapie to pay the money back. Last June, the top French court ruled the arbitration was fraudulent.

The IMF's board supported Lagarde throughout the French legal proceedings against her. They began the month after her appointment in July 2011. She took over at the IMF from another French citizen, Dominique Strauss-Kahn, who resigned the post amid sexual assault allegations.

AP