French police on Wednesday raided the Paris home of IMF chief Christine Lagarde in connection with a probe into her handling of a high-profile scandal when she was a government minister.
The investigation concerns Lagarde's 2007 decision to ask an arbitration panel to rule on a dispute between disgraced tycoon Bernard Tapie and the collapsed bank Credit Lyonnais.
The arbitration resulted in Tapie being awarded around 400 million euros ($500 million) -- an outcome that triggered outrage among critics who insisted the state should never have taken the risk of being forced to pay money to Tapie, a convicted criminal.
That view has been effectively endorsed by the CJR, a court established to assess potentially suspect actions by government ministers in office.
The CJR has deemed Lagarde's decision to send the Tapie case to arbitration "questionable" and suggest she was personally complicit in a process characterised by "numerous anomalies and irregularities".
Lagarde's lawyer Yves Repiquet told AFP his client was cooperating with the investigation. "Mrs Lagarde has nothing to hide," he said.
Lagarde herself, now 57, has defended the controversial decision to send the Tapie case to arbitration, describing it as "the best solution at the time".
Her employers at the IMF also indicated that the ongoing investigation would have no bearing on her current role as managing director of the global body.
"As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary," IMF spokesman Gerry Rice said in Washington.
"Prior to its selection of the managing director, however, the IMF's executive board discussed this issue and expressed its confidence that Madame Lagarde would be able to effectively carry out her duties as managing director."
The arbitration panel appointed by Lagarde agreed to award Tapie 285 million euros (400 million euros including interest) in compensation linked to his 1993 sale of the sports group Adidas.
Tapie argued successfully that the state should compensate him following the collapse of the publicly owned Credit Lyonnais because the bank had defrauded him by consciously undervaluing Adidas at the time of the sale.
Most of the huge award to Tapie went to clearing his debts and tax liabilities but he reportedly retained up to 20-40 million euros which he has used to relaunch his business career.
He recently purchased a newspaper group in the south of France and there has been speculation about him re-entering politics as a candidate for mayor of Marseille in 2014.
Tapie was a minister under Socialist president Francois Mitterand but he backed right-winger Nicolas Sarkozy in the 2007 and 2012 presidential elections.
His support for Sarkozy has been put forward as a possible explanation for the allegedly favourable treatment he received from Lagarde, who was Sarkozy's finance minister at the time.
Tapie is best known as the former owner of France's best-supported football club, Olympique Marseille, and his role in a 1993 match-fixing scandal for which he was sent to prison.
Lagarde has been the head of the International Monetary Fund (IMF) since 2011, having taken over from her compatriot Dominique Strauss-Kahn who resigned after an alleged sexual assault on a New York hotel maid.
She is the first woman to head the organisation and her appointment was seen as the culmination of a glittering career in law and politics.
After rising to the executive board of US legal consulting giant Baker & McKenzie, she became France's first female finance minister after Sarkozy was elected in 2007.