French court rules IMF Chief Christine Lagarde must stand trial in Tapie case

International Monetary Fund Managing Director Christine Lagarde must face a criminal trial for her handling of a dispute during her time as French finance minister, a ruling that could hamper her second term as head of the world’s lender of last resort.

The Cour de Cassation backed a December decision that Lagarde, 60, should stand trial for alleged negligence that paved the way for a massive government payout to tycoon Bernard Tapie. While the threat of a trial has clouded her tenure at the IMF, she was handed a second five-year term as managing director in February.

Lagarde is accused of failing to block an arbitration process in 2008 that brought to an end the longstanding dispute between former state-owned bank Credit Lyonnais and Tapie, a businessman and supporter of then French President Nicolas Sarkozy. Tapie walked away with an initial award of about 285 million euros ($314 million) before it was cut to zero by an appeals court.

The charge of negligence in the use of public funds carries a maximum penalty of one year in prison and a fine of 15,000 euros. She will stand trial at a specialized panel that deals with ministers accused of crimes related to their positions known as the Cour de Justice.

“I am convinced that the court will find the allegations of negligence to be without merit,” Lagarde’s lawyer Patrick Maisonneuve said in a statement.

Judges at the Cour de Cassation said there was no need to wait for a decision in a parallel procedure concerning other people involved in the case such as Orange SA Chief Executive Officer Stephane Richard, chief of staff at the French Finance Ministry during Lagarde’s tenure.

A high-profile case that requires Lagarde to spend long periods in Paris could be problematic, according to Stephane Bonifassi, a criminal lawyer in the French capital, who’s not involved in the case.

“Being accused of negligence in handling public funds when at the head of an organization that regularly lectures states” on how they should handle government money “is a bit contradictory,” Bonifassi said ahead of the ruling. Given the support she’s had all along, he expects he job won’t be jeopardized even though there might be a debate.

Lagarde took over as head of the IMF in 2011 when Dominique Strauss-Kahn resigned after a hotel maid accused him of sexual assault. Prosecutors dropped a criminal case amid inconsistencies in the maid’s testimony; Strauss-Kahn reached an undisclosed civil settlement with the woman.

Lagarde is the first woman to lead the IMF, which was conceived during World War II to coordinate international monetary policy and lend to countries facing balance-of-payments shortfalls. The managing director is selected by the fund’s 24 executive directors, who represent its 189 member nations.