IMF chief charged with 'negligence' over graft case

The shock announcement came a day after she was grilled by a special court in Paris that probes cases of ministerial misconduct, the fourth time she has faced such questioning in a case that has weighed upon her powerful position as managing director of the International Monetary Fund.

"The investigating commission of the court of justice of the French Republic has decided to place me under formal investigation," she said in exclusive comments to AFP.

In France, being placed under formal investigation is the nearest equivalent to being charged, and happens when an examining magistrate has decided there is a case to be answered. It does not, however, always lead to a trial.

"I have instructed my lawyer to appeal this decision which I consider totally without merit.

"I return back to Washington where I will indeed brief my board."

Asked whether she intended to resign from the IMF, she responded: "No."

The case relates to her handling of a 400-million-euro ($527-million) state payout to disgraced French tycoon Bernard Tapie in 2008.

The payout was connected to a dispute between the businessman and partly state-owned bank Credit Lyonnais over his 1993 sale of sportswear group Adidas.

Tapie claimed Credit Lyonnais had defrauded him by intentionally undervaluing Adidas at the time of the sale and that the state, as the bank's principal shareholder, should compensate him.

Lagarde referred the dispute to a three-member arbitration panel that ruled in favour of Tapie, who is suspected of receiving favourable treatment in return for supporting ex-president Nicolas Sarkozy in the 2007 election.

"After three years of procedure the only surviving allegation is that through inattention I may have failed to block the arbitration that put an end to the long standing Tapie litigation," she told AFP.

The IMF chief has always denied any wrongdoing. After a third grilling in March, she had said she "always acted in the interest of the country and in accordance with the law."

She had until now avoided formal charges that could have forced her to quit as head of the IMF, and had instead been placed under a special witness status that forced her to come back for questioning when asked by the court.