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Christine Lagarde. Credit: IMF Staff Photo/Stephen Jaffe

It was announced on Friday that Lagarde’s appeal against an order to stand trial over her handling of a €403m payment to French tycoon Bernard Tapie in 2008 had failed.

Lagarde has just begun her second term as managing director at the IMF, running one of the world’s most important financial institutions. She was the only candidate nominated, and received the backing of the UK, Germany, China and France to stay in the position for another five years.

On Friday, IMF spokesman Gerry Rice said the fund’s executive board has been briefed on the development and “continues to express its confidence in the managing director’s ability to effectively carry out her duties”.

Lagarde’s lawyer Patrick Maisonneuve said he was convinced that the trial, due to take place at a special French court that tries ministers accused of crimes related to their positions, will prove her innocence.

The case centres on whether Tapie was offered a deal in return for his support for former French president Nicolas Sarkozy. The court will seek to establish whether Lagarde referred a case brought by Tapie against French public bank Crédit Lyonnais to private arbitration rather than the normal courts as part of this agreement.

Tapie, former owner of Adidas and a French football team, said Crédit Lyonnais had undervalued his stake in Adidas after he was ordered to sell the company due to a conflict of interest.

The case, which was two decades old at this point, landed on Lagarde’s desk in 2008. She referred it to a private arbitration panel, which awarded Tapie €403m in damages and interest.

By this time the state-owned bank had collapsed and the funds paid to Tapie came from the public purse, signed off by Lagarde.

But after eight years of legal wrangling, in December this year a decision by the Cour de Justice de la République, the French court that oversees criminal proceedings against officials, overruled the compensation and ordered Tapie to repay the sum with interest.

It also judged that Lagarde had chosen to ignore advice on the matter and should stand trial for negligence. Lagarde appealed the decision.

With that appeal now thrown out, Lagarde is now set to face the allegations at the Cour de Justice de la République at a not-yet-specified date.

If found guilty of a charge of negligence in the use of public money, she risks a one-year jail sentence and €15,000 fine. 

Lagarde maintains that she has always acted in the interest of the French state and with respect for the law.