In any other walk of life, a conviction for negligence would result in a prison sentence, being fired, or both. But not in politics, it seems.
Christine Lagarde, the managing director of the International Monetary Fund (IMF)—the organisation that aims to promote better financial governance and economic stability around the world—was convicted by a special French court on 19 December on charges of “negligence by a person in position of public authority” while serving as French finance minister in 2007.
Accused of allowing the misuse of public funds—rather than actual corruption—Lagarde faced the prospect of being sentenced to a year in prison and a fine of €15,000. Though found guilty, there have been no punitive measures—not even a criminal record. Lagarde has kept her job, kept her freedom, kept her money, and has largely kept her reputation intact.
Indeed, hours after Lagarde’s conviction, the IMF’s executive board declared its “full confidence” in her, saying that it looked “forward to continuing to work with the managing director [Lagarde] to address the difficult challenges facing the global economy.”
The French government also confirmed its confidence in Lagarde, who was reappointed to a five-year term at the IMF last February.
Even the court went light on her, which begs the question as to why a case was even brought if there was no appetite to set any real punishment. The prosecutor described the evidence regarding Lagarde’s alleged misuse of public funds as “very weak”, adding that she was merely following the reasonable advice of her advisers, which was an error only with hindsight. It even said that her “national and international stature” needed to be taken into account.
The case against Lagarde centered on Bernard Tapie, a former entertainer and former majority owner of sportswear company Adidas. After launching a political career and becoming a cabinet minister in Francois Mitterrand’s Socialist government in 1992, Tapie had to sell his stake in the company. However, in 1993 Tapie accused the bank in charge of the sale, Crédit Lyonnais, in which the French state had a stake at the time, of defrauding him by deliberately undervaluing the firm (the bank sold the company for €320m, but investors—which included a subsidiary of Crédit Lyonnais—immediately sold it on for €560m). Cue years of costly legal battles.
In 2007, Lagarde—who at that time was finance minister under conservative President Nicolas Sarkozy—sent the dispute to a three-person private arbitration authority that a year later awarded Tapie €404m (U.S.$429m) in damages and interest that the French state was liable for. This included €45m for “moral damages.”
The payout caused public outrage, and prompted French prosecutors to investigate the circumstances more thoroughly due to suspicions of fraud and misuse of public funds to reward political supporters. Lagarde was cleared of the most serious charges in 2014, and in 2015 a French court ruled that Tapie had not been entitled to compensation and should repay the €404m.
Lagarde’s latest courtroom appearance was before the Court of Justice of the Republic (CJR), which is composed of 12 politicians and three magistrates (rather than independent judges), and handles allegations of crimes committed by cabinet ministers in office. CJR trials are rare but in a similar judgment in 1999, it found another French politician, Edmond Herve, guilty of negligence over a contaminated blood case but did not punish him—thereby setting the precedent that allows courts to deliver a guilty verdict but withhold actual punishment.
The court did not fault Lagarde for approving the arbitration: instead, it ruled that she had been negligent for not appealing the decision. CJR cases may not be retried but can be appealed against on grounds of procedural errors. Lagarde has said that she will not appeal the ruling.
However, the whole episode has highlighted a series of issues that are troubling for compliance officers (if not prosecutors). While Lagarde technically took the rap and was found guilty (without punishment), the finger of blame for not appealing the award was pointed downwards to unnamed advisers in her department who did not give her the “right” advice.
Yet testimony suggests that Lagarde had been properly briefed and that she ignored legal opinion. In fact, ex-treasury official Bruno Bezard told the CJR that Lagarde had been warned that even allowing the Tapie case to go to arbitration created “colossal risks.” He also called the decision not to appeal the €404m award as “scandalous.”
Also, hearing the case in a politically weighted court—rather than one where ordinary citizens can be tried for negligence and seemingly sent to jail—gives the impression that politicians are untouchable, while their subordinates are not.
Another problem is that a conviction for financial negligence is a worrying scenario for someone in charge of a development fund. It also raises questions about the stewardship of the IMF, and the attitude it has to poor governance and oversight—particularly when the IMF often lectures governments from developing countries on much the same issues.
While the case may largely blow over, it may just show that Lagarde may not be quite the steadying hand that the organisation hoped for when it renewed her term of office so enthusiastically.