Brazil’s IMF Envoy Says Lagarde Court Case ‘No Trivial Matter’

A French court’s decision to place International Monetary Fund Managing Director Christine Lagarde under formal investigation may have repercussions at the fund and requires explanations to member countries, Brazil’s representative on the IMF board said.

“We need to know what this means, in terms of, for instance, her capacity to carry out her duties as managing director, the reputational implications for the fund,” Paulo Nogueira Batista, one of 24 IMF executive directors, said in a telephone interview. “It’s not a trivial matter.”

The decision in Paris to put Lagarde under investigation for “negligence,” which she said she will appeal, is the latest development in a case looking into a 2008 decision she made as the French finance minister. In previous steps during the legal process, the IMF’s board publicly supported her.

Lagarde said in a statement earlier today that she will brief the board when she returns from the French capital.

Nogueira Batista said he’s been given no date for a briefing by Lagarde yet and that directors will need to decide whether to make a public statement after hearing more details.

Lagarde, 58, took over the Washington-based fund three years ago as the institution was reeling from the arrest of Dominique Strauss-Kahn on charges including the attempted rape of a hotel maid in New York. The charges were later dropped, and he settled the maid’s lawsuit in 2012.

Strauss-Kahn’s Departure

“It doesn’t help the fund’s reputation after what happened in the recent past to have now another managing director under formal investigation,” said Nogueira Batista, who represents Brazil and 10 other countries at the board.

In 2008, Lagarde decided to allow an arbitration to end a dispute between Bernard Tapie, a businessman and supporter of then President Nicolas Sarkozy, and former state-owned bank Credit Lyonnais. The court has been looking into whether she erred in agreeing to the arbitration, which resulted in the business tycoon being awarded about $500 million.

Lagarde, who was put under investigation for “negligence” by the Cour de Justice de la Republique, has denied any wrongdoing, saying that allowing the arbitration was the best option for the state.

“After three years of procedure, the sole surviving allegation is that through inadvertence or inattention I may have failed to intervene to block the arbitration that brought to an end the longstanding Tapie litigation,” she said in a statement obtained through her lawyer.

IMF spokesman Gerry Rice earlier today said Lagarde is on her way back to Washington and will brief the board as soon as possible, offering no further comment.

Before it's here, it's on the Bloomberg Terminal.