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Originally published May 24, 2013 at 12:56 PM | Page modified May 24, 2013 at 2:39 PM

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IMF chief named key witness in French payoff case

After two days of intense questioning from French magistrates, International Monetary Fund chief Christine Lagarde said Friday a court named her as a key witness in an investigation into a controversial payoff to an outspoken businessman that was arranged while she was France's finance minister - stopping short of charging her outright.

Associated Press

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PARIS —

After two days of intense questioning from French magistrates, International Monetary Fund chief Christine Lagarde said Friday a court named her as a key witness in an investigation into a controversial payoff to an outspoken businessman that was arranged while she was France's finance minister - stopping short of charging her outright.

Lagarde, seemingly relieved and insisting it's time to return to work, said the Paris court handed her the status of "assisting witness" in its probe of her role in a 400 million euro ($520 million) pay-off to a flamboyant tycoon, Bernard Tapie. Under French law, that status means she still could be later charged in the case, but can have legal representation and access to court files as the probe continues - a process that could take months or even years.

The case centers on the payment made to Tapie, a well-connected magnate, in a private arbitration process to settle a dispute with state-owned bank Credit Lyonnais over the botched sale of Adidas in the 1990s. The deal is seen by many in France as an example of the cozy relationship between big money and power in France.

Investigators opened an inquiry in 2011 into possible charges of "complicity to embezzlement of public funds" and "complicity to forgery." The probe may not result in a trial. If it does, and if Lagarde were to be charged and then convicted, she could face up to 10 years in prison, according to prosecutors.

Tanned, relaxed and seemingly unfazed, Lagarde said in a brief statement to reporters outside the court that the questioning had allowed her to "demonstrate that I have always acted in the best public interest and in accordance with the law ... Now, it's time for me to go back to work in Washington, and I will of course be briefing my board."

Still, Friday's decision by the special court for government ministers prolongs the legal question-mark over her head.

At the very least, the closed-door hearings took Lagarde away from her international duties. So far, the Washington-based IMF has stuck by her. She has earned praise for her negotiating skills as its managing director during Europe's debt crisis, and is seen as a trailblazer for female leaders.

After the ruling, IMF spokesman Gerry Rice said in a statement: "The Executive Board has been briefed on this matter several times and on each occasion expressed confidence in the Managing Director's ability to effectively carry out her duties. The Board will be briefed again in the coming days."

Lagarde lawyer Yves Repiquet said "assisting witness" was "the best possible status she could get" because under French law, she could not be considered as a simple witness. Being an assisted witness affords her access to the legal files in the case, and allows her right to have a lawyer - attributes not afforded a simple witness under the law, he said.

"My reaction is one of satisfaction, because - as I have always said - Madame Lagarde has two weapons: the truth, and her conscience," he told The Associated Press by phone, acknowledging that the 24 hours at the court over two days was long. "It took a while, if only to transcribe, re-read, and validate her answers."

"Her legal fate is not definitively decided, but still ... it's not finished, but it's not going to hover over her," Repiquet said. "We can very much have peace of mind."

When the payment was made, Tapie was close to then-French President Nicolas Sarkozy, who was then Lagarde's boss. Critics say the deal was too generous to Tapie at the expense of the French state, and that the case shouldn't have gone to a private arbitration authority because it involved a state-owned bank.

Lagarde and the IMF were aware of the probe when she took over as managing director of the fund from Dominique Strauss-Kahn in 2011. In March, French investigators searched Lagarde's Paris home. Her lawyer said at the time that she welcomed the search as a step toward proving her innocence.

The case could also tarnish France's image: Strauss-Kahn is also French. He resigned after a New York hotel maid accused him of trying to rape her.

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Angela Charlton and Bastien Inzaurralde in Paris, and Marjorie Olster in Washington contributed to this report.

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