Exclusive: the secret report that could scupper Lagarde's bid to lead IMF

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French finance minister Christine Lagarde is hotly tipped to replace Dominique Strauss-Kahn, arrested in New York last weekend on sex assault charges, as Managing Director of the International Monetary Fund (IMF). Mediapart has exclusively obtained a copy of a confidential report (pictured) by the French national audit office, the Court of Accounts, which we publish here and which could potentially scupper her candidacy to become IMF chief. It throws deep suspicion on Lagarde's role, already the object of legal moves for suspected "abuse of authority", in a massive out-of-court settlement of 403 million euros of public funds awarded to controversial French tycoon Bernard Tapie in 2008. Laurent Mauduit reports.

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French finance minister Christine Lagarde is hotly tipped to replace Dominique Strauss-Kahn, arrested in New York last weekend on sex assault charges, as Managing Director of the InternationalMonetary Fund (IMF). Mediapart has exclusively obtained a copy of a confidential report by the French national audit office, the Court of Accounts, which we publish here and which contains details that could potentially scupper her candidacy to become IMF chief. It throws deep suspicion on Lagarde's role, already the object of legal moves for suspected "abuse of authority", in a massive out-of-court settlement of 403 million euros of public funds awarded to controversial French tycoon Bernard Tapie in 2008. Laurent Mauduit reports.

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The report by the French national audit office investigates the background of an extraordinary government decision to enter into private arbitration in an until then long-standing court dispute that opposed the French state and flamboyant French tycoon Bernard Tapie. It also looks at the highly surprising decision not to appeal the judgment that awarded Tapie, on July 7th 2008, with 403 million euros to be paid from the public purse.

The dispute centred on Tapie's alleged spoliation by the former state-owned bank Crédit Lyonnais during its mandated sell-off of Tapie's business interests, notably his controlling share of the Adidas sportswear and accessory company, in the early 1990s. Tapie became involved in a lengthy legal fight for damages which he brought against the French government agency responsible for the liabilities of the defunct bank,which collapsed following a high-risk lending scandal in1993. For more on the background of the dispute, and the chequered, twice-fold rags-to-riches life of Bernard Tapie, click here.

Aperçu de l'une des pages du rapport Aperçu de l'une des pages du rapport

In October 2007, five months after Nicolas Sarkozy's election as French president,for which Tapie was notably a campaigner, the state agency responsible formanaging the liabilities of the bank, the Consortium de Réalisation (CDR),agreed with Tapie's representatives to settle the dispute through out-of-courtarbitration. The move, sanctioned by finance minister Christine Lagarde and first set in train by her predecessor and longstanding friend of Tapie, Jean-Louis Borloo, proved highly favourable for Tapie's claim. The national audit office report, as Mediaparat can reveal here, provides evidence of how Tapie benefitted from serious violations of the laws of state, pointing suspicion at Lagarde and the senior civil servant in charge of the CDR over their management of the arbitration procedure.

The revelations in the report could not have come at a worse time for Christine Lagarde. Hitherto touted as one of the European frontrunners to succeed Dominique Strauss-Kahn as Managing Director of the International Monetary Fund (IMF), Lagarde is strongly implicated by the national audit office, better-known as the Court of Accounts (after its French title, la Cour des Comptes). And the accusations made by the state auditors could bear heavily on the proceedings now targeting the finance minister herself.

On May 10th, Jean-Louis Nadal, public prosecutor with France's highest court of appeal (Cour de Cassation), acting on a petition from Socialist Party Members of Parliament, requested the Court of Justice of the French Republic (the CJR, which adjudicates suspected ministerial misdeeds) to investigate Lagarde for "abuse of authority" in the out-of-court settlement that awarded Tapie a fortune in taxpayers' money. The CJR's commission des requêtes, a panel of magistrates handling letters rogatory, is expected to reach a decision soon.

The Court of Accounts is competent for financial matters: it does not have the power to say whether any criminal offences were committed in this case. But it does have the power to point to financial irregularities. And a glance at the report suffices to show that the irregularities were legion, and attributable to the finance ministeror various other parties to the case. The following are the salient facts brought to light by the state auditors, and which are presented in further detail over the following pages of this article:

  • Bruno Bezard, managing director of the French Agencyfor State Shareholdings (Agence des Participationsde l'Etat, APE), wrote a whole slew of memos to successive financeministers warning them against going to arbitration in the Tapie case. "I formally advised the previous minister's predecessor against [...] authorizing the CDR, if it were to refer this proposal to the EPFR [the Public Establishment for Financing andRestructuring, set up to supervise the CDR], totake this route, which would run counter to the interests of the CDR and the State,"he told Christine Lagarde. "The APE hasinformed the minister and her predecessors [...] of the substantial risks of sucha procedure for the CDR, and through it for public finances, in particular inthe context of the favourable ruling by the Courde cassation," he insists on September 17th of that year. However, the finance minister paid no heed to these warnings.

 

  • The Court of Accounts judges itwould be beyond its remit to say whether going to arbitration was legal, but itdoes believe there was wrongdoing: "Given these uncertainties, it was necessaryto make sure by every appropriate means, including consultation with the Council of State (Conseil d'Etat [legal advisor to the executive branch andadministrative court of last resort]), whether the CDR was empowered to resort to arbitration on behalf of a public establishment.
  • Despite the uproar in Franceover the damages awarded to Bernard Tapie, Christine Lagarde announced on July 28th2008 that she had given the CDR written instructions not to seek anout-of-court settlement. To justify her decision, she said she had "taken noteof the analyses produced by the CDR's advisors" and which "estimated that the chances of an appeal were weak."The Court of Accounts states that this was an untruth. As Mediapart has previously revealed, two of the four legal advisors in question had advised the state to go to arbitration.
  • The Court of Accounts has ascertained that "possible grounds for recusal" of one of the three arbitrators were discovered in the autumn of 2008, but that fact was never publicly disclosed.The state auditors came across a "statement of fees" suggesting that one of thethree arbitrators, Pierre Estoup, might have received a payment in 1999 after ameeting with Maurice Lantourne, Bernard Tapie's lawyer. The arbitrator in question did not disclose that at the outset of the arbitration, even though hesigned an undertaking to declare potential conflicts of interest in the case.
  • The Court of Accounts points out that the version of the settlement signed on November 16th 2007 "differs from the wording and modifications that were approved by the CDR's board on October 2nd 2007 on an important point concerning the qualification of moral prejudice for the entire claim for compensation of 50 million euros in the name of Mr. and Mrs. Tapie."
  • The report by the Court of Accounts magistrates reveals thatJean-Louis Borloo, former lawyer for Bernard Tapie, and who was briefly financeminister between May and June 2007, instructed his principal private secretary,immediately after taking up his ministerial post, to begin the arbitrationprocedure sought by Tapie, who is a longstanding friend of Borloo.

See the report, available in French only, below (please note clarifications in the 'Boîte Noir' box bottom of page), or click here to download.

 

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In order to protect Mediapart's sources for this story, the report from la Cour des comptes, the French national audit office, as reproduced in French at the bottom of page one, is a re-typed version of the original.

The original version is 105 pages long, and stamped with the word ‘Confidentiel' on each page. Four pages from the original report were missing. In the re-typed version, Mediapart chose to leave out pages 60 - 86 of the original report because they did not concern the Tapie case. We also left out the annex pages, which provided no significant information about the case and which notably contained a chronology of events.