French Court Finds IMF Chief Negligent for Failing to Appeal Arbitration Award

On Monday, current International Monetary Fund (“IMF”) chief Christine Lagarde was reportedly convicted of negligence related to a controversial arbitration award that was paid while she was France’s finance minister.  According to a panel of French judges, Lagarde was negligent for failing to appeal a $425 million arbitration award in favor of a French businessman who accused lender Crédit Lyonnais of cheating him in a business transaction.  At the time of the purported fraud, the French government was a stakeholder in the banking institution.

The Court of Justice of the Republic stated although it was proper for Lagarde to allow arbitral proceedings to occur, she should have sought to overturn the unusually large arbitration award.  The court stated Lagarde negligently misused public funds by paying the sum without first appealing the arbitration panel’s decision.  The court also declared the arbitration proceedings to be fraudulent and ordered the businessman to repay the funds he received as a result.  The entire arbitral award was reportedly quashed by French civil courts.

Despite Lagarde’s negligence conviction, the French court declined to impose a penalty on the IMF chief who was reappointed to her post earlier this year.  Lagarde will maintain her IMF post despite the conviction.

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