Probe into Lagarde's €400m 'sweetheart' deal for businessman

The stainless reputation of the new International Monetary Fund (IMF) chief, Christine Lagarde, is to be tested by a French court investigation.

Six judges decided yesterday that there was prima facie reason to investigate Ms Lagarde for "complicity in forgery and embezzlement" for approving a €400m (£346.4m) legal settlement to a controversial businessman in 2008.

There will now be a lengthy, formal inquiry on behalf of the special court which tries alleged wrongdoing by French ministers and former ministers. A trial, if any, would still be several years away.

Consequently, there is no immediate threat to Ms Lagarde's position as chief executive of the IMF.

She was elected to the IMF's top post last month to replace another former French finance minister, Dominique Strauss-Kahn, who faces charges of attempted rape in New York.

In nominating Ms Lagarde to the post in June, Paris gave assurances to other governments that the allegations against her would come to nothing.

Ms Lagarde, 55, is accused of exceeding her authority as finance minister to push through a "sweetheart" settlement of a long-running compensation dispute between the French government and the disgraced tycoon and businessman Bernard Tapie. There is no suggestion she benefited personally from the deal, but opposition politicians allege Mr Tapie received an unjustifiably high settlement because he switched allegiances from left to right in the 2007 presidential election to support Nicolas Sarkozy.

Once a senior international lawyer, Ms Lagarde, rejects any suggestion that she acted illegally or politically. She says the settlement, recommended by an arbitration panel that she appointed, was the best way to end a long and poisonous dispute.

Mr Tapie, 68, rose to fame in the 1980s and early 1990s by rescuing a series of failing companies, including the German-based sporstwear firm, Adidas.

He became the owner of the leading football club, Olympique Marseilles (OM) and was appointed minister for urban renewal in a left-wing government.

Later Mr Tapie sold Adidas to the then state-owned bank, Crédit Lyonnais.

After Adidas was resold the following year, Mr Tapie persuaded a court he had been badly treated or cheated. However, no final agreement could be reached on a figure for compensation until Ms Lagarde appointed an independent arbitration panel in 2008.