US fines France £374m on Credit Lyonnais deal

France has agreed to pay a 542m euro (£374m) "fine" to the United States for the irregular purchase of a failed Californian insurance company by the then state-owned French bank Crédit Lyonnais in 1991. The out of court settlement resolves - for the time being - a poisonous Franco-American dispute that had threatened to drag senior French business figures, including the billionaire tycoon François Pinault, before the Californian courts.

The deal does not cover the alleged role in the affair of M. Pinault - owner of Gucci, Printemps, and Fnac - and he still faces possible legal action and a multi-million dollar civil action. M. Pinault, a close friend of President Jacques Chirac, was the ultimate beneficiary of the 1991 purchase of the insurance company Executive Life, which broke Californian financial regulatory law.

He bought the company from Credit Lyonnais three years later, including a junk bond portfolio that made him an estimated profit of $1bn (£635m), a large part of his current fortune. M. Pinault denies any involvement in the original purchase.

Most of the "fine", accepted by France a few hours before a deadline set by Californian investigators on Tuesday night, will be paid by French tax-payers, who have already paid out more than 15bn euros to settle the debts run up by Crédit Lyonnais in the Eighties and early Nineties. The bank has since been privatised and merged with Crédit Agricole.

The Californian investigation began in 1998 after a mysterious tip-off from a senior French business figure, who has never been publicly identified.

The bankrupt Californian insurance company, Executive Life, was purchased in 1991 by Altus, a subsidiary of Credit Lyonnais. Californian law forbade banks from owning insurance companies. US investigators say the French purchasers disguised their connection with the French bank, which was then in the midst of a series of take-overs that led to its downfall.

Under the deal struck on Tuesday, France recognised that a technical fault was committed but refused to accept that there was deliberate fraud. Paris had previously refused out of court settlements of as little as $50m. French officials believe that the increased demands of the Californian justice system reflect, in part, US animosity towards France for its refusal to support the invasion of Iraq.

Despite pressure from M. Pinault on the French government, the tycoon's alleged part in the affair was left out of the agreement. It is thought unlikely that he will face a separate criminal action, but both he and the French state still face independent, civil proceedings.