IMF Chief Lagarde Faces France Finance Crime Probe

A French court ordered a probe for embezzlement and other fraud-related charges against IMF head Christine Lagarde dating to her time as France's finance minister, a prosecutor said Thursday.

She has denied any wrongdoing or illegality in the case which resulted in a big compensation payment for a private businessman out of public funds in 2008. Her lawyer branded the case politically motivated.

The Court of Justice of the Republic, which hears charges against ministers arising during their term in office, approved "a judicial inquiry concerning Mrs Lagarde," presiding judge Gerard Palisse told reporters.

It asked magistrates to investigate Lagarde's role in settling the financial dispute with a view to possible criminal charges.

State prosecutors in a statement specified the charges to be investigated as "embezzlement of public funds" and "complicity in fraud" and said prosecutor Cecile Petit would formally request the probe "in the coming days".

Lagarde's lawyer Yves Repiquet said the inquiry was "in no way incompatible" with her new role as managing director of the International Monetary Fund (IMF). He said he expected the case to be dismissed.

The IMF is the global lender of last resort with a key role in calming the effects of the financial crisis on public finances in Europe.

Repiquet complained that the case was driven by "suspicion abusively cast on Christine Lagarde by a handful of opposition members of parliament for political ends."

"I have a perfectly clear conscience" about the Tapie affair, Lagarde said in June. "Whether the investigating magistrates decide to pursue an inquiry or not, I am just as confident and calm," she added on July 6.

Lagarde in June became the first woman head of the IMF, taking over from fellow French national Dominique Strauss-Kahn after he resigned following his arrest on attempted rape charges.

Lagarde has been accused of exceeding her authority by cutting short a legal battle between flamboyant French tycoon Bernard Tapie and the formerly state-owned bank Credit Lyonnais by sending them to private arbitration.

The arbitration panel awarded Tapie, a supporter of Lagarde's then boss President Nicolas Sarkozy, 400 million euros ($560 million) in the case, linked to the bank's alleged mishandling of Tapie's sale of sportswear brand Adidas.

Under the French judicial system, the judges' inquiry ordered on Thursday could lead to Lagarde being charged with a criminal offence punishable by a jail term. That process would likely take several years.