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Christine Lagarde, I.M.F. Chief, Is Found Guilty of Negligence Christine Lagarde, I.M.F. Chief, Is Found Guilty of Negligence
(about 3 hours later)
PARIS — Christine Lagarde, the managing director of the International Monetary Fund, was found guilty on Monday of criminal charges linked to the misuse of public funds during her time as France’s finance minister, a case that has clouded her I.M.F. leadership at a time of growing uncertainty for the group. The International Monetary Fund threw its support behind its leader, Christine Lagarde, on Monday despite her conviction in a French court on charges of misusing public funds.
The judges did not impose a fine or sentence on Ms. Lagarde, a move that may allow her to keep her I.M.F. post. But the verdict is likely to add to the debate over the fund’s role as international elites and their institutions face growing populist criticism. With international elites and their institutions facing populist criticism amid political and social change in the United States and Europe, the 24 directors of the fund decided that this was not the time to leave the I.M.F. rudderless.
The board, which was already set to meet Monday, is weighing its options. Earlier on Monday, the Cour de Justice de la République, a special French court that considers cases against government officials, had found Ms. Lagarde guilty of criminal charges linked to the misuse of public funds when she was France’s finance minister nearly a decade ago. But the court did not impose a fine or sentence.
It could seek Ms. Lagarde’s resignation immediately, or she could volunteer to resign. But those steps are considered unlikely, given that the fund backed her for a second five-year term, which began in February. In a statement, the directors of the I.M.F. said on Monday that they had considered the court’s decisions and had “full confidence in the managing director’s ability to continue to effectively carry out her duties.”
If anything, the recent political shocks in Europe and the United States could push the I.M.F.’s board to rally behind Ms. Lagarde, even if there are lingering concerns about her credibility. She and the fund are central players in some of the thorniest issues on the global economic stage. Yet the verdict — and it potential to tarnish Ms. Lagarde as a leader — comes at a critical juncture for the I.M.F.
Ms. Lagarde and her team have been adamant about providing debt relief to near-bankrupt Greece, putting the fund at odds with Germany. And philosophically, the fund, since its inception after World War II, has ardently advocated the types of free-trade policies that President-elect Donald J. Trump has criticized so aggressively. Founded and largely managed by Europeans and Americans, the fund now oversees a global economy where faster-growing countries like China are pushing for more of a leadership role.
Ms. Lagarde’s legal issues have dogged her work at the fund since she was appointed in 2011. She took over as managing director when Dominique Strauss-Kahn resigned after being accused of sexually assaulting a maid in a New York hotel. Ms. Lagarde is the fourth of the last six leaders to hail from France and the difficult time the I.M.F. has had in terms of foreseeing, as well as reacting to, the European debt crisis has caused some to wonder whether the time has come to appoint a non-European head.
The case against Ms. Lagarde centered on Bernard Tapie, a former entertainer and owner of Adidas who had previously been jailed on corruption charges. Mr. Tapie accused the lender Crédit Lyonnais, in which the French state had a stake at the time, of cheating him in the sale of his share in Adidas in 1993. Years of costly legal battles ensued. I.M.F. doctrine, which advocates free trade and austerity for countries in financial difficulties, has also been criticized as elitist and not sufficiently in tune with the populist movements sweeping the globe today.
In 2007, Ms. Lagarde sent the dispute to a three-person private arbitration authority, which awarded Mr. Tapie more than 400 million euros, or $420 million at current exchange rates, in damages and interest, to be paid by the state. For now, such longer-term concerns have taken a backseat to a more pressing view that with Britain leaving the European Union, Italy’s future in the eurozone perhaps in doubt and the possibility of global trade wars being set off by President-elect Donald J. Trump, the steady and experienced hand of Ms. Lagarde was needed more than ever.
The arbitration decision was derided as politically tainted, and Ms. Lagarde was charged with negligence for allowing the arbitration in the first place and for declining to appeal the panel’s verdict. “She has been a very effective leader,” said Edwin M. Truman, a past specialist in international finance at the Federal Reserve and the U.S. Treasury. “Yes, there are big questions about the fund’s future. But for her to have to step down now — well, that would be complicated.”
While the court did not fault Ms. Lagarde for permitting the arbitration, it ruled that she had been negligent for not appealing the decision. Martine Ract-Madoux, the presiding judge in the case against Ms. Lagarde, also rejected the claim that the case was politically motivated. The United States Treasury Secretary, Jacob J. Lew, expressed the Obama administration’s support for Ms. Lagarde, saying that “she is a strong leader of the I.M.F., and we have every confidence in her ability to guide the Fund at a critical time for the global economy.”
But the court took a softer stance on the punishment, noting that a judge had previously invalidated the payout to Mr. Tapie and that Ms. Lagarde had “national and international” stature. The tribunal spared Ms. Lagarde a criminal record. For the Trump administration, “I don’t think this kind of ethical question is likely to be the highest priority, ” Mr. Truman said. While the I.M.F. and other global institutions did not figure in the presidential debate, Mr. Trump repeatedly slammed a “global power structure” that fixed the economy against workers. “At bottom it’s all about French politics,” Mr. Truman said.
Speaking to reporters after the hearing, Patrick Maisonneuve, Ms. Lagarde’s lawyer, said he had a “mixed” reaction to the verdict. Members of the I.M.F. board were well aware that Ms. Lagarde was facing trial in her native France over allegations that occurred when she was the finance minister for president Nicolas Sarkozy’s government.
The consensus among the directors [YES?] was that Ms. Lagarde’s transgressions occurred when she was not at the fund — in stark contrast to her predecessor Dominique Strauss-Kahn — and since taking charge in 2011, she had proved to be a leader capable of presenting a softer side of the fund while also fighting hard to bolster its legitimacy in the aftermath of the financial crisis.
More so than her predecessors, Ms. Lagarde has pushed the fund to be more aggressive in taking up the cause of women and focusing attention on growing issues of inequality around the world.
Over the past year and a half, Ms. Lagarde has also led a forceful public critique of Europe’s refusal to offer Greece debt relief in return for the difficult economic reforms the country has been putting in place.
Nevertheless, some close followers of the fund contend that, while Ms. Lagarde may have retained the backing of her board for the moment, over the longer term, her encounter with the French legal system may have put a dent in her most valuable asset — her carefully constructed public persona.
“She was a breath of fresh air, someone representing true change from the past,” said Peter Doyle, a former economist at the fund and now an outspoken critic. “Now she is just another tainted European leader.”
Those are tough words, for sure. But economists point out that the fund’s core mission of requiring financially ailing countries to reform their economies and fight corruption demands credibility and reputation of the highest order.
And that starts at the top, with its leader — especially one who is as widely known as Ms. Lagarde.
“It would be complacent if not delusional to say there will be no impact on the institution,” said Nicolas Veron, an expert on international economics at the Bruegel Institute in Brussels. “The only question is how big is the impact — and how does it compare with the need for stability.”
Ms. Lagarde’s legal issues in France have dogged Ms. Lagarde’s work at the fund, ever since she was appointed in 2011. She took over as managing director after Dominique Strauss-Kahn resigned following accusations that he sexually assaulted a maid in a New York City hotel.
The case against Ms. Lagarde centered on Bernard Tapie, a former entertainer and owner of Adidas who had previously been jailed on corruption charges. Mr. 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 in the sportswear empire in 1993. Years of costly legal battles ensued.
The court did not fault Ms. Lagarde for green lighting the arbitration, but it ruled that she had been negligent for not appealing the decision. The court, noting that a judge had previously invalidated the payout to Mr. Tapie in a 2015 ruling and that she had “national and international” stature, decided not to punish Ms. Lagarde and spared her a criminal record.
Speaking to reporters after the hearing, Ms. Lagarde’s lawyer, Patrick Maisonneuve, said he had a “mixed” reaction to the verdict.
“On the one hand, she is found responsible, but given the circumstances, given the responsibilities that Ms. Lagarde had at the time — in 2008, we were in a major economic crisis — the court decided that it would not sentence Ms. Lagarde to anything,” he said.“On the one hand, she is found responsible, but given the circumstances, given the responsibilities that Ms. Lagarde had at the time — in 2008, we were in a major economic crisis — the court decided that it would not sentence Ms. Lagarde to anything,” he said.
Ms. Lagarde’s lawyers can appeal the verdict before France’s highest criminal court, the Cour de Cassation, on procedural grounds. But Mr. Maisonneuve suggested she might not because no punishment was meted out. Ms. Lagarde’s lawyers can appeal the verdict before France’s highest criminal court, the Cour de Cassation, on procedural grounds. But Mr. Maisonneuve suggested she might not, because no punishment was meted out.
The verdict comes as criticism of the fund is mounting. Ms. Lagarde did not attend the latest hearing on Monday, but was in Paris last week for the case.
For years, the I.M.F. has automatically awarded its top job to a senior European official, even as the influence of emerging economies like China, Brazil and Mexico has grown.
Of the last six leaders of the I.M.F., four have come from France. The last two, Ms. Lagarde and Mr. Strauss-Kahn, have encountered serious legal problems.
In a statement issued on Monday after the ruling, the French finance minister, Michel Sapin, said that Ms. Lagarde was heading the I.M.F. “with success” and that the French government had “complete confidence in her ability to carry out her responsibilities.”
The trial also revives concerns in France about high-level corruption, shining a spotlight on the intimate ties between politicians and businesspeople and on the large sums of money that are sometimes used to grease the country’s political wheels. Many people are under investigation, for accusations including embezzlement and organized fraud.
Witnesses at Ms. Lagarde’s trial described a system in which influential, wealthy members of the French elite, like Mr. 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 Ms. Lagarde, saying that Mr. Tapie was often seen walking the hallways, presumably to visit officials — “which was rather unexpected.”
Mr. Bézard, who led a government body overseeing state holdings, including a bank set up to take over Crédit Lyonnais’s bad assets, said Ms. Lagarde had ignored repeated warnings from members of his staff not to proceed with arbitration. He suggested that Ms. Lagarde had further erred by not challenging the amount of the payout.
Ms. Lagarde testified that she had declined to do so because it could have resulted in new lawsuits from Mr. Tapie and additional costs to the state.