Lagarde Seen Likely to Avoid Jail Time, Keep IMF Job Amid Trial

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International Monetary Fund (IMF) director Christine Lagarde.

Photographer: Mark Schiefelbein/Pool via Getty Images
  • Court’s previous convictions haven’t resulted in prison time
  • IMF chief seen continuing to have trust of membership

Christine Lagarde is likely to avoid jail time and keep her job as head of the International Monetary Fund after she was ordered to stand trial in France on charges that carry a potential prison term.

Lagarde, 60, on Friday lost a bid to challenge a December decision to be tried for alleged negligence during her time as French finance minister that paved the way for a massive government payout to tycoon Bernard Tapie. The specialized panel that will hear Lagarde’s case has previously found ministers guilty without having them actually serve time in prison.

The panel’s record and Lagarde’s strong support from IMF member nations amid the long-running case mean there’s little chance that it will amount to more than a distraction from her role leading the world’s lender of last resort. No date has been set yet for the trial, which is expected to last about a week.

“I don’t think anybody really feels that this is a matter that undermines her effectiveness,” and if Lagarde received a suspended jail sentence, “she would just carry on,” said Edwin Truman, a former U.S. Treasury official who’s now a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. continues to have a high regard for Lagarde, a U.S. Treasury official told reporters in Chengdu, China, Saturday, when asked about the court case. The IMF chief and Treasury Secretary Jacob J. Lew are in Chengdu this weekend attending a Group of 20 gathering.

Lagarde is accused of failing to block an arbitration process in 2008 that brought to an end the longstanding dispute between former state-owned bank Credit Lyonnais and Tapie, a businessman and supporter of then-French President Nicolas Sarkozy. Tapie walked away with an initial award of about 285 million euros ($314 million) before it was cut to zero by an appeals court.

Negligence Charge

The charge of negligence in the use of public funds carries a maximum penalty of one year in prison and a fine of 15,000 euros. “I am convinced that the court will find the allegations of negligence to be without merit,” Lagarde’s lawyer Patrick Maisonneuve said.

While a jail sentence can’t be ruled out, it’s more likely that Lagarde would get a symbolic fine if convicted, said Christopher Mesnooh, a Paris-based lawyer at Fieldfisher LLP.

The Cour de Justice was created in 1993. It’s made up of three professional judges and 12 parliamentarians. Six ministers have stood trial before the court, including current Environment and Energy Minister Segolene Royal in a defamation case and Laurent Fabius in relation to the distribution of contaminated blood when he was prime minister. Both were cleared.

Edmond Herve, who was health minister, was convicted in the contaminated-blood case in 1999, though he was spared a prison term because 15 years had lapsed and because he wasn’t able to benefit entirely from the presumption of innocence during that time. Former Interior Minister Charles Pasqua received a suspended sentence in the embezzlement case in 2010.

French President Francois Hollande had pledged to abolish the Cour de Justice when he was running for the office but never managed to do it. Presidential and parliamentary elections in France scheduled for May and June, respectively, could also affect the timing of the trial.

Political Implications

Since Sarkozy may run for president next year, “this has all sorts of interesting political connotations,” said Mesnooh, who isn’t involved in the Lagarde case. “If she’s exonerated that’s one less legal issue Sarkozy has to worry about. If, for whatever reason, she’s found guilty then it will be something else that his opponents will use against him.”

While the threat of a trial has clouded Lagarde’s time at the IMF, its member nations gave her clear backing for a second five-year term as managing director in February. There were no challengers.

Lagarde’s terms of appointment from 2011 say she must avoid “even the appearance of impropriety.” The executive board can dismiss her at any time.

The IMF board on Friday expressed confidence in Lagarde’s “ability to effectively carry out her duties,” Gerry Rice, the fund’s chief spokesman, said in a statement.

“She has the trust of the members, and I think she will continue to have it,” said Andrea Montanino, a former IMF executive director who’s now director of the Atlantic Council’s global economics program in Washington. “The only problem that can occur is if she has to spend a reasonable amount of time outside Washington and particular in Paris to follow the case.”

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