No one wants to be convicted of a crime, especially if you’re the managing director of the International Monetary Fund, the first woman to become a finance minister of a G-8 country, and, according to Forbes magazine, the fifth most powerful woman in the world.
But if you’re going to be convicted of a crime, negligently failing to challenge an arbitration award is not a bad crime to be convicted of.
Yesterday, a French court convicted Christine Lagarde of just that.
The decision involved a dispute between a now defunct state-owned bank and Bernard Tapie, the charismatic French entrepreneur, politician and entertainment mogul.
Tapie had accused the bank of selling his majority interest in Adidas in the early 1990’s at far too low a price and failing to disclose its interest in the transaction. Further, he argued that a potential purchaser had acquired an option to repurchase the shares at more than twice the price.
In 2007, Tapie endorsed Nicolas Sarkozy in his presidential campaign. After Sarkozy was elected, Ms. Lagarde, as France’s finance minister, consented to the dispute being taken out of the courts and sent to arbitration.
Up to that point, the matter had been litigated in the courts for more than a decade with no final resolution.
In 2008, the arbitration panel issued an award in Tapie’s favor to the tune of 400 million euros. The award shocked and outraged French citizens, especially since the government would ultimately bear the cost of the award. Ms. Lagarde, again in her capacity as finance minister, did not challenge the award in the courts.
Rumors circulated that the government’s agreement to arbitrate and failure to appeal the award was reward for Tapie’s support of Sarkozy in the 2007 presidential election. The Socialists asked for a full investigation, and, in 2011, the public prosecutor recommended a judicial inquiry into whether Lagarde had engaged in “an abuse of authority” by agreeing to the arbitration and not challenging the award.
The same year, Lagarde was appointed head of the International Monetary Fund, taking over after Dominique Strauss-Kahn, another-French-official-turned-IMF Managing Director, resigned after being accused of sexually assaulting a New York hotel maid.
In 2013, the French police raided Lagarde’s home in Paris and, in 2014, she was placed under formal investigation for negligence, a charge that carries a maximum penalty of one year in prison.
In December 2015, she was charged with negligence despite the recommendation of France’s top prosecutor that the case be dropped. The negligence charges were based on Lagarde permitting the Tapie dispute to be arbitrated and then failing to challenge the arbitration award.
Lagarde contested the charge and stated that she acted with “a clear conscience with the only intention of defending the public interest.”
Yesterday, a French court rejected the negligence charge based on Lagarde’s agreement to arbitrate, but convicted her of negligence for failing to appeal the arbitration panel’s award. The court declined to impose any penalty or to leave her with a criminal record, and just hours after the verdict was issued the executive board of the IMF reaffirmed its full confidence in Lagarde.
Meanwhile, Tapie’s rags-to-riches fortunes took another twist. Despite Lagarde’s decision not to appeal, a body in charge of settling the bank’s debts launched an appeal of the arbitration award and claimed that the arbitrators concealed their longstanding friendship with Tapie. In December 2015, a Paris appeals court agreed, ordering Tapie to repay all of the money he received.
Tapie denied he has the money, saying, “I am ruined. Ruined. Absolutely on ruined street. I haven’t got a thing.”
Christine Braamskamp is head of K&L Gates’ Corporate Crime and Regulatory Team in the firm’s London office. She acts for both corporations and individuals on an array of complex, multi-jurisdictional white collar crime and regulatory investigations and compliance matters. Patrick Navein is an associate in K&L Gates’ Corporate Crime and Regulatory Team in the firm’s London office.
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