French authorities on Wednesday searched the Paris
home of International Monetary Fund chief Christine Lagarde as part
of their investigation into her role in a colossal compensation
payment to a businessman in 2008.
Lagarde was in Germany as her apartment was being searched by magistrates investigating whether she abused her authority in the Bernard Tapie case.
As finance minister, Lagarde took the controversial decision in 2007 of referring a long-running dispute between the businessman and the state to binding arbitration.
Tapie, who accused the previously state-owned bank Credit Lyonnais of defrauding him in the 1993 sale of his share in sportswear company Adidas, came away with 285 million euros (368 million dollars) in compensation.
The size of the settlement caused shock in France, where courts generally take a conservative stance towards compensation.
A former politician himself, Tapie was a supporter of then-president Nicolas Sarkozy. Lagarde's critics suggested Tapie's political connections could have played a role in the generous payout.
Lagarde, 57, has persistently denied such allegations, saying her decision was the "the best solution at the time" to end the dispute.
Her French lawyer, Yves Repiquet, told local media he was certain Wednesday's searches would lead to her being cleared of any blame.
In Washington, IMF spokesman Gerry Rice declined comment.
"As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary," he said.
"Prior to its selection of the managing director (in 2011), however, the IMF's Executive Board discussed this issue and expressed its confidence that Madame Lagarde would be able to effectively carry out her duties as managing director."
The allegations have failed to dent Lagarde's approval ratings in France. She is consistently rated as one of the country's most popular personalities.
The case does, however, provide unwelcome headlines for the IMF as the international crisis lender tries to rebound from the Dominique Strauss-Kahn saga.
Lagarde's French predecessor as IMF chief, Strauss-Kahn resigned in May 2011 after being arrested in New York on charges of attempting to rape a hotel maid. Prosecutors later dropped the charges while Strauss-Kahn settled a civil case by the maid out of court.
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