Today French courts said they would officially investigate Christine Lagarde for her conduct in a deal she helped orchestrate in 2008, before she became the head of the IMF.All everyone seems to be saying is just how embarrassing it is for her, because by some appearances, it looks like she arranged for the state to award a $400 million “gift” to a rich guy, Bernard Tapie, a businessman turned politician, in a court case after he had his yacht and other possessions taken from him by a state-owned bank.
But that’s mostly true because people don’t seem to know the full story.
It’s been speculated for months now that Lagarde might be investigated for her help in arranging a big settlement that a state-owned bank awarded to a wealthy businessman in 2008.
It’s never been clear that she did anything wrong, but according to the BBC, “Prosecutors say Ms Lagarde abused her authority by approving a 285m-euro ($406m) payment to businessman Bernard Tapie.”
Here’s what really happened.
Tapie was accused of owing money to the state as early as 1994, when Crédit Lyonnais threatened to take his mansion and took charge of his yacht because he had not paid back the 1.2 million francs he allegedly owed to the bank by him and his companies. At the time, Tapie said: “All the judicial attacks and prosecution cases laid against me are solely designed to stop me speaking out” on Europe.
Crédit Lyonnais was apparently on a lending spree at the time it leant money to Tapie and is now in a lot of debt. The bank had allegedly defrauded Tapie in 1993 and 1994 when it sold Adidas on his behalf and got a much higher bid than it had loaned Tapie for his purchase of the company, but in court, to everyone’s surprise, the final ruling was in favour of Credit Lyon.
Tapie’s team said they would re-try the case and the bank intended to continue the fight. But then Lagarde asked that the state resolve the matter. The case was settled, the bank paid Tapie, and that’s essentially why she’s being investigated.
That and the fact that the bank that paid him was a state-owned bank, and it might have been inappropriate for Lagarde to order the court to proceed with the arbitration regardless of whether or not Tapie was in the right.
There are two other things adding flames to the fire against Lagarde.
1. In 2007, people were surprised when Tapie, a socialist, supported Sarkozy, who was the former IMF chief’s DSK’s rival in the bid for France’s new President (before DSK was disgraced by the maid scandal, of course). Then when Tapie won the case in 2008, people forgot that Tapie was expected to win the lawsuit in the first place and suspected that Tapie had suddenly supported Sarkozy because he agreed to clear up money that Tapie allegedly owed to the state.
Photo: Pascal-Emmanuel Gobry, Business Insider
2. When Tapie was paid 400 million Euros by the government in 2008, people were outraged. Lagarde insisted that he would only wind up with about 40-50 million Euros. But he ended up with more like 200 million Euros (around $280 million).And it doesn’t help Tapie’s case that he’s been accused of improper business dealings before.
From the Economist:
The outspoken Mr Tapie’s main extra-political role is as president of Olympique Marseille, a French football team which is at the centre of a long-running scandal over bribes allegedly paid to a rival club. But he also made headlines in 1990 when he bought Adidas, a German sportswear company, with the help of Crédit Lyonnais.
When Mr Tapie wanted to get rid of Adidas in 1993 after joining the government, he turned again to Crédit Lyonnais, which obligingly agreed to buy a chunk of Adidas shares.
Today, relations between Mr Tapie and Crédit Lyonnais are less cosy. The bank’s new management wants him to repay within four years the FFr1 billion or so his companies owe it, and has taken a charge over many of his assets including his yacht. It may still come out of the relationship with a loss of some FFr400m-500m.
In any case, Lagarde will have to be careful to avoid even the appearance of another slip-up. It looks like her IMF contract has a special, possibly new, “behave yourself” clause. NPR writes:
After the legal troubles her predecessor Strauss-Kahn faced, Lagarde’s IMF contract says she is “expected to observe the highest standards of ethical conduct” and “shall strive to avoid even the appearance of impropriety in your conduct.”