Tapie Affair Continues to Raise Questions of Fraud

Christine Lagarde, Director of the IMF. Photo: Flickr.com/World Economic Forum

Christine Lagarde, Director of the IMF.
Photo: Flickr.com/World Economic Forum

On Thursday, January 24 the houses of two prominent French businessmen were raided by police in Paris. The homes of chief executive of France Telecom SA Stéphane Richard and business tycoon Bernard Tapie were searched as part of an ongoing investigation into what is now well-known in France as the “Tapie Affair.”

The legal drama has dragged on for nearly a decade now as the authorities look into charges of fraud and embezzlement made against Christine Lagarde, the current director of the International Monetary Fund (IMF).  However, the affair began before Lagarde even entered the scene, with Bernard Tapie accusing the French bank Crédit Lyonnais, a state-owned bank, of fraudulently profiting from a large sale of his stake in the German sports brand Adidas.

In 1990 Crédit Lyonnais lent money to Tapie’s business to buy a large stake in Adidas and after three years advised him to resell it. Tapie sold the company to a group of investors including Crédit Lyonnais for about €300 million, after which the bank resold it for €710 million.  Tapie alleged that the bank had fraudulently profited from the sale and sued.

The lawsuit made its way through multiple courts beginning in 2005 when a Paris court made the decision that Crédit Lyonnais and the state owe Tapie €135 million in compensation for the sale. The next year the Cour de cassation, France’s highest court, overturned the ruling, leaving Tapie with nothing.  To finish off the necessary procedures in the case, a lower court had to confirm the final judgment, but before that could happen, Christine Lagarde, France’s Finance Minister at the time, announced that the case should be sent to a private arbitration tribunal.  By 2008, the French were shocked to hear that the long affair left the French government obligated to pay Bernard Tapie €285 million plus interest, and €45 million for personal injury, all closing in on a grand total of €420 million ($580 million).

Bernard Tapie is a flamboyant businessman who specializes in the recovery of bankrupted companies, of which Adidas is a famous example. But this was not Tapie’s first entanglement with the law.  In 1995 he was sentenced by the Court of Appeals to two years in prison for corruption charges, and in 1997 he went through six months of incarceration. As former Minister to the Parti Socialiste (PS) leader François Mitterand, it came as a surprise when Tapie switched sides to support Nicolas Sarkozy in 2007.

Speculation arose that the final decision by the private arbitrators favored Tapie.  Critics questioned why a case involving a public entity would be sent to a private arbitration procedure.  Such paths are typically taken in private business. Thus some saw Lagarde’s intervention as unlawful. In 2011 Lagarde was charged with fraud and embezzlement on the “misuse of social power and concealment of the crime to the detriment of achieving consortium.”

In this case, the consortium refers to the Consortium de réalisation (CDR), which was created in 1995 to manage the liabilities of a nearly bankrupt Crédit Lyonnais. Such charges can carry a prison sentence of up to 10 years and a fine of €150,000 for Lagarde.

The charges came from the PS, making some believe that the accusation was politically charged.  However the party believed that Lagarde misused her power to help Tapie.

In May of 2011, Hollande said “everybody knows Lagarde was not behind this,” hinting that the blame should be thrown on Sarkozy, who was president at the time of the settlement. Lagarde was believed to have taken orders from those above her, overriding the objections her advisers made against the government settling the case through private arbitration.

Lagarde has repeatedly said that her intervention was lawful and denied wrongdoing.  Some jumped to her defense, saying that the case was costing the French taxpayers a lot as it dragged on in the courts, and thus she was acting on the French peoples’ interest.

Yet the legal saga clearly has not ended.  Lagarde’s charges from two years ago came on the eve of her ascension to her leadership in the IMF.  Now they have come back to haunt her.

The raids that happened on Thursday are believed to be led with the intention of finding evidence of a close relationship between Nicolas Sarkozy and Bernard Tapie.  Reports have shown that between 2007 and 2008, Sarkozy had multiple meetings with Tapie and Mazeaud Pierre, one of the three arbitrators who was chosen to settle the dispute.

Stéphane Richard was Lagarde’s chief of staff at the time, and on Thursday he said that the decision to go into arbitration was made “after careful consideration, after much advice, trying in good faith to defend the state’s best interests.”

Trackbacks

  1. […] via Tapie Affair Continues to Raise Questions of Fraud. […]

  2. […] The saga began when business tycoon Bernard Tapie sued Crédit Lyonnais, claiming that the state-owned bank fraudulently profited from his stake in the Adidas sports company. After the lawsuit dragged on in court for some time, it was decided that the case be taken to a private arbitration tribunal, which concluded that the government owed Bernard Tapie €285 million, with interest. […]

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