Christine Lagarde has arrived at a court in Paris for questioning over a payout to controversial tycoon Bernard Tapie during her time as finance minister.
The IMF chief is being asked to explain her handling of a row in 2007 which resulted in some 400 million euros ($516 million) being paid to Bernard Tapie.
She is appearing before the Court of Justice of the Republic (CJR), which investigates ministerial misconduct.
Christine Lagarde insists the award was the best solution at the time.
“It’s a pleasure to see you,” a smiling she told reporters upon arrival.
Christine Lagarde could be placed under formal investigation for the decision to use arbitration, against advice from senior advisers, to settle a long-running court battle between the state and Bernard Tapie, a supporter of the then French President, Nicolas Sarkozy.
The case stretches back to 1993 when Bernard Tapie, a colorful, controversial character in the French business world, sold his stake in sports company Adidas to Credit Lyonnais.
Soon after the bank sold on that stake for a much bigger profit, Bernard Tapie claimed they had defrauded him.
In 2007, President Nicolas Sarkozy suggested the finance ministry – which had been overseeing the dispute and was led by Christine Lagarde – should move the case to arbitration.
Bernard Tapie won a much bigger payout than he might have expected in court.
Christine Lagarde is not accused of profiting from the payout, but she is being questioned over the misuse of public funds.
If she is placed under formal investigation it is of course embarrassing. It is a step closer to trial but it does not necessarily mean the case will end up in court.
Christine Lagarde is still one of the most popular politicians on the right in France. And after the disgrace that was heaped on the last IMF chief, Dominique Strauss-Kahn, few in France want to see another prominent French politician embarrassed on the world stage.
Some on the right wonder whether she could be a future candidate for first female French president, notably because she has stayed outside the conservative UMP party’s vicious in-fighting.
Christine Lagarde, a perfect English speaker, has never expressed a desire to run for president. But her five-year term at the IMF is due to finish in 2016 – a year before the next presidential election. With her acumen she may be a dangerous opponent for President Francois Hollande.