Note on the conviction of Christine Lagarde by the Cour de Justice de la République in France
On 19 December 2016, the Cour de la Justice de la République (CJR) in France rendered its judgment convicting of criminal negligence Christine Lagarde, current Director General of the International Monetary Fund (IMF), former Minister of Finance in France and former managing partner of the global law firm Baker McKenzie (and first woman to occupy each of these posts). The Court exempted Ms. Lagarde from all the sanctions provided under the French Penal Code.
The CJR is a specialized court instituted by the French Constitution to judge accusations of serious criminal conduct by members of the French Government carried out in the exercise of their offical functions. It is comprised of 15 judges, three judges on the Cour de Cassation (France’s highest civil and criminal court) and 12 Parliamentarians (six appointed by the National Assembly and six by the Senate). Since its inception, the CJR has registered about 1,000 complaints, but prior to the case involving Ms. Lagarde only four matters had resulted in the rendering of judgments and only three defendants had been convicted. Convictions require a majory vote of the members of the Court.
Immediately following upon the announcement of Ms. Largarde’s conviction by the CJR, the Executive Council of the IMF reaffirmed its “full confidence in Ms. Lagarde’s capacity to continue to perform effectively her functions” within the Organization. For its part, the French Government issued a communiqué by the Minister of Finance proclaiming that “Ms. Lagarde is implementing successfully her mandate within the IMF and the Government remains fully confident of her ability to carry out her responsibilities”.
But some observers have manifested much less largesse. For instance, one well regarded French journalist has accused Ms. Lagarde of “false naēvety”.
Ms.Lagarde had a right to appeal the judgment of the CJR to the Cour de Cassation, but chose not to, stating that while she was not satisfied with the judgment, it “was time to turn the page . . . and concentrate her attention on her mission at the head of the IMF”.
Below, the events and procedures that culminated in Ms. Lagarde’s conviction are summarized.
Then, Ms. Lagarde’s defense as it was understood and treated by the CJR is examined in detail.
Ms. Lagarde was prosecuted for her management in 2007 and 2008 while she was Minister of Finance of the French State’s interests in the arbitration proceedings organized to settle the disputes which had been simmering since the mid-1990s between, on the one hand, the liquidators of the companies of the flamboyant French businessman Bernard Tapie and the liquidators of the personal estates of Mr. Tapie and of his wife and, on the other hand, the administrators of the defeasance his former banker, the Crédit Lyonnais, and of some of its subsidiaries.
Mr. Tapie accused the Bank of having cheated his group in implemeting a mandate granted in 1992 to sell its subsidiary that controlled Adidas, the German sporting goods company, as well as of having in 1994 and 1995 illegally forced his companies and his wife and himself into bankruptcy.
The liquidators of the Tapie Group companies and of the spouses began the counter-attack in 1996. There ensued a plethora of lawsuits that culminated in 2006 with two decisions of the Cour de Cassation that sent the parties back before the Court of Appeal with findings on the law that each side claimed were favorable to its interests.
Thus, in 2007, since the entity that had taken over the compromised assets of the Crédit Lyonnais, the Consortium de Réalisation (CDR), though it was a commercial company, was controlled by a public entity, the Établissement Public de Financement et de Restructuration (EPFR), which fell under the aegis of the Ministry of Finance, it was incumbent upon Ms. Lagarde to decide whether to approve the submission to arbitration. She did in fact issue instructions to the Directors on EPFR Board appointed by the State not to object to the submission to arbitration.
Then, after the Arbitration Tribunal ruled on 7 July 2008 that the Crédit Lyonnais side was liable to pay to the Tapie side some EUR 403 million, Ms. Lagarde’s Ministry was called upon to decide whether to contest the award. Again, Ms. Lagarde instructed the State-appointed Directors on the Board of EPFR to forego any such recourse.
Ms. Lagarde made these decisions after having received the opinions of high-level civil servants as well as of eminent professionals, which were divided; in particular, the Agence des Participations de l’Etat (APE), the role of which is to oversee the State’s corporate investments, had sent several memoranda to Ms. Lagarde that recommended against the submission to arbitration.
But, it was only in 2011, following upon letters of several Parliamentarians and of the General Prosecutor at the Court of Public Audits (Cour des Comptes) that criticized Ms. Lagarde’s management of the case that the General Prosecutor at the Cour de Cassation seized the Inquiries Commission of the CJR on counts of complicity in fraud and embezzlement of public funds.
At first, the Inquiries Commission qualified Ms. Lagarde as a witness to the commission of those infractions. After a full inquiry including interrogations of Ms. Lagarde, it indicted her on 17 December 2015, for the crime under article 432-16 of the French Penal Code of negligence by a person vested with public authority from which there resulted an embezzlement of public funds, and more particularly for submitting the dispute to arbitration and later for not seeking to have set aside the award of 7 July 2008.
Ms. Lagarde appealed against her indictment to the Cour de Cassation arguing that the CJR could not judge her under article 432-16 of the Penal Code unless and until the court of general jurisdiction seized of the criminal case against several protagonists for embezzlement of public funds under article 433-4 of the same Code had handed down convictions. Ms. Lagarde also asked the Cour de Cassation to rule that the prosecution had failed to prove before the Inquiries Commission that her decisions had caused the embezzlement of public funds.
But, on 2 July 2016, the Cour de Cassation dismissed the appeal. First, the Court ruled that the infractions alleged to have been committed by Ms. Lagarde under article 432-16 of the Penal Code and those alleged to have been committed by other defendants under article 433-4 of the same Code were “distinct” and “autonomous” and that the proceedings before the CJR against Ms. Lagarde and those targeting other protagonists before the criminal courts of general jurisdiction were “independent”. The reasoning underlying these affirmations is detailed by the Reporting Judge on the Cour de Cassation; for instance, it would be conceivable, and there is case-law to support the proposition, to imagine an accused under article 432-16 being found not guilty of corruption even as the non public officials pursued for embezzlement might be found guilty under article 433-4. Finally, the Cour de Cassation ruled that it was not incumbent upon it to evaluate the merits of the charges levied by the Commission and that it had “no power other than to verify that the qualification of the facts by the Commission justified the jurisdiction of the CJR”.
Before the CJR, Ms. Lagarde’s lawyers raised a preliminary objection claiming that the CJR was not in a position to determine whether an embezzlement of public funds had occurred, and seeking to have the CJR suspend its hearing of the case pending the determination on that point by the courts of general jurisdiction. But the CJR rejected that motion and echoed the reasoning of the Cour de Cassation in its rejection of Ms. Lagarde’s above-mentioned appeal against her indictment, while adding that the “proper administration of justice imposed that it render its judgment within a reasonable time, an objective that could not be achieved if it adjourned the proceedings before it pending the outcome of distinct proceedings of random duration”.
In its judgment of 19 December 2016, the CJR found Ms. Lagarde to be guilty under article 432-16 of the Penal Code that provides (after inclusion by reference of article 432-15 of the Code) that:
When the destruction, distraction or subtraction by a third party of any deeds or securities or public or private funds, or bills, coins or securities substituting therefor, or any other object that was remitted to such party in connection with his/her functions or mission results from the negligence of a person vested with public authority or assigned a mission of public service, of a public accountant or public depositary, the latter shall be sentenced to one year in prison and a EUR 15,000 fine.
Thus, the CJR qualified as an embezzlement of public funds the attribution by the Arbitral Tribunal to the Tapie spouses of EUR 45 million as reparation for the moral prejudice alleged to have been caused to them by the Crédit Lyonnais.
In addition to the sanctions provided by article 432-16 of the Criminal Code, Ms. Lagarde was subject to additional sanctions under 432-17 of that Code, namely:
1. destitution of civil, civic and family rights,
2. prohibition against exercising any public function or any professional or social activity in the exercise of which or in connection with which the infraction was committed, in particular, the carrying on of any commercial or industrial profession, the direction, administration, management or control on any account whatsoever, whether directly or indirectly, for their own account or that of another party, of any commercial or industrial enterprise or of any commercial company (which prohibitions may be cumulated);
3. confiscation of amounts or objects improperly obtained by the author of the infraction, except such objects as might be restituted;
4. public notice or dissemination of the decision rendered.
But the CJR exempted Ms. Lagarde from any criminal sanction, and ordered that her conviction not be included in her criminal record.
2. – The reasoning of the CJR
In its decision of 17 December 2015, the Inquiries Commission of the CJR had indicted Ms. Lagarde under article 432-16 of the Penal Code for having, in the exercise of ministerial functions:
- approved, against the advice of numerous advisers, the submission to arbitration of the Tapie-CDR disputes (2.1.),
- foregone the exercise of a recourse against the Arbitral Award of 7 July 2008 despite having been informed of a serious basis on which to have it voided (2.2.).
Before the CJR, Ms. Lagarde admitted that she
had not acted in compliance with any instructions which might have been given to her by higher authorities within the State (President of the Republic and Prime Minister) but had made the decision within her authority, as Minister of Finance, and she assumed full responsibility therefor.
By way of introducing the reasons for its decision, the CJR first recalled the principle of the separation of powers, written into article 16 of the Declaration of Human Rights and the Rights of Citizens and article 24 of the Constitution of October 4, 1958, providing that Parliament controls the Government, do not prevent criminal actions against a member of the Government for breaches of the duties of his/her office, such as, in the case at hand, behaviour that facilitated the embezzlement of funds committed by a third party that caused harm to the financial interests of the State.
Also, the cumulative imputation of criminal liability and of political responsibility for the same conduct does not violate the principle of equality before the law since they are of different natures and have distinct objectives.
The CJR concluded that an embezzlement had occurred on the basis of the following findings of fact: several protagonists had insisted that the dispute not be submitted to arbitration, the arbitration agreement had been “surreptitiously” modified to include a provision specifically allowing the presentation of a claim for reparation of moral harm suffered by the Tapie spouses, one of the arbitrators had “connived” with Mr. Tapie as well as with one of his lawyers to favour the Tapie side, and the amount of damages awarded by the Tribunal as compensation for the moral harm allegedly suffered by the Tapie spouses was “exorbitant”.
2.1. – On the Decision to Submit the Dispute to Arbitration
According to the original Arbitration Agreement, the liquidators of the Tapie companies would limit the total amount of all their claims to EUR 295 million plus interest at the legal rate from 30 November 1994 and the Tapie spouses would limit all theirs to EUR 50 million. It was further agreed that the arbitrators would be designated in the Arbitration Agreement, that they would render an award in law while treating as res judicata the prior judgments of the Court of Appeal of Paris and of the Cour de Cassation with respect to the disputes between the Parties and that, subject to the recourses provided in article 1484 of the Civil Code, the award would be final.
The day before the meeting of the Board of Directors of CDR held on 2 October 2007, convened to discuss the submission of the dispute to arbitration, Ms. Lagarde had received the opinion of APE that advised against submitting the dispute to arbitration based on a general disapproval of the arbitration of disputes involving the State as well as because it considered that CDR’s chances of success before the courts had been increased by the 6 October 2006 judgment of the Cour de Cassation, which had by the same token improved CDR’s prospects of negotiating a favorable settlement.
On 10 October 2007, despite APE’s recommendation, Ms. Lagarde issued an instruction to the State’s representatives on the Board of EPFR not to object to the arbitration procedure, provided that the Crédit Lyonnais would commit in writing that, in the event of liability of CDR, it would pay the first EUR 12 million of any such award.
On the same day, the Board of Directors of EPFR did not object to the decision to submit the dispute to arbitration.
Then, Ms. Lagarde’s Chief of Staff, Mr. Stéphane Richard, accepted the liquidators’ requests for two amendments to the original Agreement and did so, according to Ms. Lagarde, without informing her. First, the claims of the liquidators of the Tapie companies and of the Tapie spouses for material damages would not exceed a total of EUR 295 million plus interest at the legal rate from November 30,1994. Secondly, the liquidators of the Tapie spouses would be entitled to present a claim for moral damages of up to EUR 50 million.
Thereupon, the CJR concluded that
. . . in the light of the failure of the previous attempts at mediation and the numerous pending legal actions which it was appropriate to terminate because of their cost and given the information then available to her . . .
Mrs. Lagarde was not guilty of criminal negligence as proscribed by article 432-16 of the Criminal Code of having been negligent in approving the submission of the Parties’ disputes to arbitration.
2.2. – On the Decision not to Contest the Award before the Courts
On 7 July 2008, the Tribunal rendered its Award finding the Bank side liable to pay to the Tapie side some 80 percent of the amounts the latter had claimed.
Because the State was responsible for the payment of the amount of the Award, the Ministry of Finance solicited expert opinions as to the prospects of success of a petition to have the Award voided, that being the only recourse available under the French laws then applicable.
Divergent opinions were reported with respect to the chances of success of such a recourse.
On 28 July 2008, Ms. Lagarde instructed the representatives of the State within EPFR to oppose such a recourse.
Then, the Board of Directors of CDR approved a resolution renouncing any action to have the Award voided and the Board of EPFR did not object to that decision.
The Award having thus become final, Ms. Lagarde then issued the instructions necessary to have paid, after all set-offs, EUR152 million on 2 September 2008, and another EUR 117 million in March 2009, which payments were funded by loans of EPFR drawn on Crédit Lyonnais.
But, on 17 February 2015, the Court of Appeal of Paris ordered the retraction of the Award because it had been obtained fraudulently in that one of the arbitrators had “connived” with Mr. Tapie as well as with one of the latter’s lawyers in order to lead the Arbitral Tribunal to approve the claims of the Tapie side’s liquidators and those of the Tapie spouses.
The CJR concluded that Ms. Lagarde had acted negligently in deciding against a legal action to have the Award voided.
The CJR emphasized that Ms. Lagarde made her decision 19 days before the expiration of the appeal period, even though she was a lawyer by profession, and despite her declarations that (i) she had been particularly mindful to protect the State’s financial interests, (ii) that she had been personally involved in the Ministry’s management of the case, and (iii) that she had felt “consternation, astonishment” because of the contents of the Award, especially by the amount of the award for moral damages to the liquidators of the Tapie spouses, some EUR 45 million, at the time not subject to income taxes.
As Ms. Lagarde testified that she had not been informed of the claim of the liquidators of the Tapie spouses for moral damages of up to EUR 50 million, nor of the amendment to the Arbitration Agreement allowing such a disposition in the Award and that she had therefore never accepted the principle of such a result, the CJR ruled that “a request for explanations from her Cabinet, from APE and from the State’s representatives within EPFR was called for in order to understand the process by which such a shocking award came to pass”.
If Ms. Lagarde had solicited such opinions, she would “without any doubt” have discovered, as would later the Court of Public Audits, that the reparations for the alleged moral damages of the Tapie spouses had been included within the scope of the arbitration by an amendment to the Arbitration Agreement after it had been approved by the Boards of Directors of CDR on 2 October 2007 and of EPFR on 10 October 2007. According to the CJR, the amendment of the Arbitration Agreement in such circumstances would have justified the initiation of an action to have the Award voided on one of the grounds provided in article 1484 of the Code of Civil Procedure that was then in effect.
Moreover, the CJR remarked that the exercise of such a recourse would have enabled CDR better to negotiate with liquidators of the Tapie spouses with respect to the compensation of their moral damages, the more so in that those liquidators had on 24 July 2008, offered to reduce their claims if the Bank side would renounce all recourses.
In addition, Ms. Lagarde had claimed before the CJR that she had not read APE’s memorandum of 16 July 2008 drawing her attention to the “very grave consequences for the State’s finances of the Award”.
Indeed, Ms. Lagarde claimed before the CJR that she had never examined the Award.
In anticipation of the 20 July 2008 meeting held in Ms. Lagarde’s office, only people in her entourage who were likely to oppose an action to quash the Award were called to attend, whereas those likely to favour the exercise of such an action were not invited, including the representatives of APE and CDR’s lawyers, one of whom was admitted to practice before the Cour de Cassation and the Conseil d’Etat, and who had qualified the Award as an “abridgment and approximation devoid of any legal sense”, and the other who had acted for many years on behalf of CDR.
Therefore, the CJR ruled that:
Altogether these elements reveal negligence in the search for information which Ms. Lagarde should have carried out before making her decisions . . . This decision thus results not only from an unfortunate political choice that would be beyond the scope of review of the CJR, but from negligence within the meaning of article 432-16 of the Criminal Code.
The fraudulent appropriation by the Tapie spouses of EUR 45 million was the culmination of a criminal endeavour; Ms. Lagarde’s fault was not the only cause of the embezzlement, but it suffices that it was one of the “determining” causes therefor. Ms. Lagarde’s decision not to initiate a recourse to have the Award voided, the chances of success of which were not negligible, caused the fraud to become “unavoidable”.
For these reasons, the CJR ruled that Ms. Lagarde was guilty of negligence by a person vested with public authority from which resulted an embezzlement of public funds by a third party in an amount of EUR 45 million.
To evaluate what criminal sanction was appropriate, the CJR took into account that Ms. Lagarde had carried out her ministerial functions in a context of worldwide financial crisis. The CJR also considered in her favour “her personality and national and international reputation”. Finally, the harm to the state of public finances ceased on 17 February 2015, when the judgment of the Court of Appeal of Paris retracting the Arbitral Award became final.
On this basis, the CJR decided that the conditions provided in article 132-59 of the Criminal Code were satisfied and it exempted Ms. Lagarde from all criminal sanctions and ordered that her conviction be omitted from her criminal record.
3. - Conclusion
Crucial to the reasoning of the CJR was that Ms. Lagarde had not been aware of the changes made to the Arbitration Agreement on the signature of her Chief of Staff, Stéphane Richard, which amendments introduced the possibility of awarding the Tapie spouses up to EUR 50 million for their alleged moral damages.
But, the CJR never heard Mr. Richard on this point because he refused to testify before it invoking his right not to incriminate himself as a defendant in the pending pursuits before the criminal courts of general jurisdiction based on the allegations of fraud in the obtaining of the Arbitration Award.
It seems obvious that the absence of Mr. Richard’s testimony reduced Ms. Lagarde’s exposure to criminal liability. Without it, the CJR had no reason to doubt Ms. Lagarde’s account that she was unaware of the controversial amendment ot the Arbitration Agreement. Thus, the CJR dismissed the charge against her of negligence in accepting the terms of the Arbitration Agreement.
Furthermore, depending on what evidence Mr. Richard might have provided as to Ms. Lagarde’s involvement in the amendment of Agreement and her role more generally in the affair, her negligence might have been coloured as complicity.
Additionally, the CJR’s decided not to apply any sanctions to Ms. Lagarde in part because the harm caused by the embezzlement was considered to have ceased when the Court of Appeal of Paris’s retraction of the Award became final. But none of the funds paid to the Tapie side have actually been returned, and it may reasonably be doubted whether full restitution will ever occur. Mr. Tapie and his wife are back in personal bankruptcy and his companies are in receivership. On 6 June 2017, the Tribunal de Commerce de Paris accepted Mr. Tapie’s proposal that his companies be authorized to effect restitution of the ill begotten gains by six yearly balloon payments of which the first corresponding to five percent of the total amount due is payable in one year.
These observations beg the question whether the CJR was favorably disposed toward Ms. Lagarde and whether the CJR, by its very composition including 12 Parliamentarians among its 15 members, is less a criminal court than a forum of political judgment.
Finally, this case illustrates how the French solution for prosecuting crimes allegedly committed by ministers of a government in the exercise of their functions is not ideal.
Indeed, the recently appointed Minister of Justice in France, Franćois Bayrou, has included in his bill to be presented to Parliament to “moralize public life” a provision to amend the Constitution and abolish the CJR and subject ministers of the Government to the jurisdiction of the Court of Appeal with respect to accusations of criminal acts in connection with the exercise of their duties.
 A compilation of news reports and copies of the 14 judgments rendered in connection with the Tapie-Crédit Lyonnais dispute, and of the Arbitration Agreement, the Arbitration Award and various official reports about the case may be consulted at http://www.XXXXX.net/tapie-cdr.html. In its December 2015 issue, the Newsletter of the Asia Pacific Regional Arbitration Group published a “Note on the judgment of the Court of Appeal of Paris retracting the award in the Bernard Tapie v. Crédit Lyonnais arbitration” written by the present author and it may be consulted at http://www.XXXX.net/aprag12.15.html.
 The full text of the judgment in French is posted at http://www.xxxxx.net/lagarde191216.pdf and an unofficial English translation is accessible at http://www.xxxxx.net/lagtrad.pdf.
 Article 32 of the Organic Law n° 93-1252 of 23 November 1993 with respect to the Cour de Justice de la République.
 Michael Stothard and Shawn Donnan, “IMF stands by Christine Lagarde afternegligence verdict”, Financial Times, 20 December 2016, https://www.ft.com/content/aef2428c-c5f5-11e6-8f29-9445cac8966f.
 Mr. Tapie is a self-made business mogul whose notoriety soared when his French sports teams achieved international triumphs in cycling and football, which popularity earned him the role of host of a television show dedicated to the identification of promising entrepreneurs, and in 1992 an invitation to join the Socialist Government as Minister of Urban Affairs, and who at apex of his glory plunged into a sea of criminal pursuits that led to his imprisonment for six months in 1993, who then fell into corporate and personal bankruptcy, and who after his release from jail published a book about that experience, then launched a successful career as a pop singer, and then as an acclaimed actor on television, in movies and in the theater, and who has most recently bought two regional newspapers.
are posted at https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/communique_9382.html#hautart.
 N° 16-80133, https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/629_22_34899.html.
 Report of Ms. Durin-Kersenty, Bulletin d’information, Cour de Cassation, February 1, 2017, page 37, case n° 10-85.505, 23 July 2010, https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/586_23_17125.html.
 In 2007, that is before the reform of arbitration law implemented by Decree number 2011-48 of January 13, 2011, this article provided that:
Where in accordance with the distinctions made in article 1482, the parties have renounced making any appeals, or when they have not expressly reserved that faculty in their arbitration agreement, an action to have voided the act qualified as an arbitral award may nevertheless be brought despite any stipulation to the contrary.
It is open only in the following cases:
1° Where the arbirtator has rendered an award without an arbitration agreement or one that is void or expired;
2° Where the arbitral tribunal has been improperly constituted or where the single arbitrator has been improperly appointed;
3° Where the arbitrator has rendered an award without respecting the mission of which he was seized;
4° Where the rights of the defence have not been respected;
5° In all the cases of nullity provided in article 1480;
6° Where the arbirator has violated a rule of public policy.
 This article provides that:
The exemption from punishment may be granted when it appears that the reclassification of the convicted person has been accomplished, where the harm caused has been repaired and where the disorder resulting from the infraction has disappeared.
The court that renders an exemption from punishment may rule that its judgment will not be mentioned on the criminal record of the convicted person.
The exemption from punishment does not apply to the payment of costs of the legal action.
 ProcŹs Lagarde : l'ex-directeur de cabinet Stéphane Richard ne vient pas témoigner”,,
 “Crédit lyonnais : Tapie définitivement condamné ą rembourser 404 millions d'euros”, Le Parisien, 18 May 2017, http://www.leparisien.fr/faits-divers/arbitrage-tapie-devra-t-il-rembourser-404-meur-la-cour-de-cassation-se-prononce-ce-jeudi-18-05-2017-6959388.php.