Christine Lagarde, I.M.F. Chief, Under Investigation in France

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Christine Lagarde, I.M.F. Chief, Under Investigation in France

By DAVID JOLLY  AUG. 27, 2014

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Christine Lagarde. Credit Lisa Maree Williams/Getty Images

PARIS — Christine Lagarde, the head of the International Monetary Fund, said on Wednesday that French prosecutors had placed her under formal investigation over a murky business affair that dates to her time as finance minister under former President Nicolas Sarkozy.

Ms. Lagarde said in a statement through her lawyer that she was being investigated for “simple negligence,” by the Court of Justice of the Republic, the judicial body that is charged with investigating the conduct of high government officials.

Ms. Lagarde, who has denied wrongdoing from the start, said in a statement that the decision by a judicial committee to place her under formal investigation was “totally unfounded” and that she would be returning to work in Washington on Wednesday afternoon.

She made the announcement a day after she was questioned for a fourth time in the investigation of her role in 2008 during an arbitration proceeding between the government and Bernard Tapie, a onetime cabinet minister and the former owner of the Adidas sportswear empire. Prosecutors had assigned Ms. Lagarde the status of “assisted witness” in the case. Placing her under formal investigation signals that prosecutors believe they have evidence of wrongdoing, but the charge of negligence hardly suggests high crimes.

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Stéphane Richard, Ms. Lagarde’s former chief of staff and currently the chief executive of Orange, has been placed under investigation on “suspicion of organized fraud.” Credit Christophe Ena/Associated Press

Negligence by a government official that makes possible the misappropriation or embezzlement of public funds is punishable with a maximum fine of 15,000 euros, or $19,800, and up to one year in prison.

“After three years of investigation and dozens of hours of interrogation, the committee concluded that I had not been guilty of any infraction,” Ms. Lagarde said in the statement, “so it was reduced to claiming that I had been insufficiently vigilant during the arbitration.”

In the French legal system, a formal investigation suggests prosecutors believe they have enough of a case that they may ultimately bring criminal charges and trial. The reality is that many such investigations drag on for years with no charges being filed before being dropped.

Since its creation in 1944, the top I.M.F. official has been a European, with the job alternating among Western European nations. Ms. Lagarde took over as managing director of the I.M.F. in 2011 after her French predecessor, Dominique Strauss-Kahn, left in disgrace amid charges — later dropped — that he had sexually assaulted a woman in a New York hotel room.

Ms. Lagarde had served as Mr. Sarkozy’s finance minister from 2007 until leaving for the I.M.F.

Mr. Tapie, who had been in a long dispute with a state-owned bank, Credit Lyonnais, walked away from the arbitration with more than €400 million.

A career Socialist, Mr. Tapie in 2007 suddenly backed Mr. Sarkozy’s center-right Union for a Popular Movement party. The amount of the award came as a shock to public opinion, and the investigation began after critics accused Mr. Sarkozy’s government of having carried out a sham arbitration.

Stéphane Richard, Ms. Lagarde’s former chief of staff and currently the chief executive of Orange, the French telecommunications giant, has already been placed under formal investigation on “suspicion of organized fraud.”

Paris prosecutors could not immediately be reached for comment.

In a statement, the I.M.F. communications director, Gerry Rice, said that Ms. Lagarde was “now on her way back to Washington and will, of course, brief the board as soon as possible. Until then, we have no further comment.”