Christine Lagarde found guilty of negligence in state payout

Christine Lagarde, the director of the International Monetary Fund, has been declared guilty of "negligence . . . leading to the misappropriation of €45 million in public funds by a third party" for a decision she took as France's finance minister in 2008.

But the Court of Justice of the Republic (CJR), which handed down the verdict on Monday, refused to punish Lagarde and specified that “the context of global financial crisis” and “her personality and national and international reputation must also count in her favour”.

Judge Martine Ract-Madou read the decision in the very room in the Palais de Justice where Marie-Antoine was sentenced to be guillotined.

The regal Lagarde had attended her five-day trial last week, but returned to Washington rather than await the verdict.

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Gerry Rice, a spokesman for the IMF, said the fund’s executive board would meet later on Monday to consider options.

The French finance minister Michel Sapin issued a statement saying “Christine Lagarde is carrying out her term at the head of the IMF with success and the government maintains full confidence in her capacity to carry out her responsibilities”.

Private arbitration

Lagarde was cleared of negligence for having authorised a private arbitration to resolve the long-running dispute between Bernard Tapie, the louche businessman, former convict and friend of then president Nicolas Sarkozy, and the Crédit Lyonnais bank.

But she was condemned for negligence in not appealing the arbiters’ decision to award Tapie €403 million in damages, including what the court called “exorbitant” moral damages of €45 million.

The trial had resembled a contest of wills between Ract-Madou and Lagarde, both strong-willed, white-haired women with distinctive feature. “It’s a kick in the gut that should make you react!” Ract-Madou said of the huge award to Tapie. “I was dismayed, shocked,” Lagarde responded. “And you didn’t demand an explanation?” Ract-Madou asked. “What good would that have done? I tried to understand,” Lagarde replied.

Lagarde’s lawyer Patrick Maisonneuve insisted there was “no conviction” but only a “declaration of guilt”, since Lagarde will suffer no punishment and will not have a criminal record.

According to the Financial Times, Lagarde had convinced the IMF's executive board she would be exonerated. She was due to start her second term as director in February 2017.

Even if she manages to hang on to her $450,000-a-year job, Lagarde’s reputation as the world’s banker has been dented. The executive and judiciary branches of the French government also come badly out of the affair.

As the accusation document stated, though Lagarde officially held power of decision in the case, choices were actually made “at the highest level of the state, with the implicit agreement of the president of the republic”. In other words, the former president Nicolas Sarkozy is suspected of manipulating his administration – and Lagarde, his finance minister – to obtain a fraudulent payment on behalf of his friend Tapie.

Public perception

The decision will also exacerbate the public perception that there is one justice for ordinary citizens and another, more clement system for the rich and powerful. The CJR was established in 1993 to try cabinet ministers accused of misdeeds while in office.

The jury of three magistrates and 12 parliamentarians has never sent anyone to prison. The maximum penalty for negligence leading to misappropriation of funds by a third party – the offence that Lagarde was convicted of – is a year’s imprisonment and a €15,000 fine.

President François Hollande had promised to abolish the CJR during his 2012 presidential campaign. According to the Financial Times, he asked prosecutor Jean-Claude Marin, who has a reputation for catering to politicians, to clear Lagarde. Marin argued that Lagarde merely made "an unfortunate political choice".

There was “nothing reprehensible in itself” about taking a bad decision, Marin said. “It may be a political error but it is not a criminal offence.” In the event, Bruno Bézard, a witness and former high-ranking civil servant in the finance ministry whose memos Lagarde did not read, played the role of prosecutor. Bézard was especially severe concerning Lagarde’s failure to appeal the award to Tapie.

“Before such a scandalous decision, even if there was only one chance in a thousand of winning, one had to do it!” Bézard said.