MercoPress. South Atlantic News Agency

IMF chief Lagarde on trial for complicity of embezzlement in France

She approved a 285 million Euro settlement for allegedly a good friend of President Sarkozy (Photo AP)

French magistrates formally opened an investigation into IMF chief Christine Lagarde this week for possible misconduct in approving a huge payment to a friend of President Nicolas Sarkozy when she was Finance minister.

The decision to start the probe during France's summer break, less than two weeks after a court gave the green light, appeared to signal authorities' determination to proceed quickly with the inquiry hanging over the head of one of the world's top economic policymakers.

Lagarde faces investigation for complicity in embezzlement of public funds for approving a 285-million-Euro settlement to Bernard Tapie in 2008 when she was finance minister.

Tapie said that a former state-owned bank had defrauded him in the sale of his stake in sports clothing business Adidas in 1993. He lost the case in France's top court in 2006 and was appealing the decision when Sarkozy won power in 2007.

Lagarde, who denies any misconduct, overruled objections from some ministry officials to drop the judicial case and pressed ahead with the arbitration arguing it was needed to resolve the long-running case swiftly.

There is no suggestion she profited personally in any way from the final settlement.

The investigative commission of three judges from the Court of Justice of the Republic – a special tribunal which can judge ministers – is expected to summon Lagarde to testify, but no date has yet been set.

Judicial investigations in France frequently run on for years, potentially casting an awkward shadow over Lagarde as she seeks to shape the international response to the global slowdown and rebuild the credibility of the Fund after its former managing director departed in disgrace.

Dominique Strauss-Kahn resigned after he was arrested in May on charges of attempting to rape a New York hotel maid. He has strongly protested his innocence and the next court hearing is due for August 23.