IMF Board Response to Lagarde Conviction Reaffirms Institutional Indifference to Corruption
Former financial regulator Bill Black says the case reveals how power and money protect the elite
SHARMINI PERIES: Welcome to The Real News Network. I’m Sharmini Peries coming to you from Baltimore. Christine Lagarde will continue to serve as the Managing Director of The International Monetary Fund despite her conviction of criminal negligence conviction according the IMF’s Board of Directors. The announcement was made hours after a French court found Lagarde guilty for actions taken while serving as country’s Finance Minister under President Sarkozy in France. She will not be serving any time nor paying any fines regardless of her criminal conviction.
The Executive Board of the IMF said it reaffirms its full confidence in the managing director’s ability to continue to effectively carry out her duties. Further, it said the executive board looks forward to continuing to work with the Managing Director to address the difficult challenges facing the global economy.
On to talk about all of this is our regular, Bill Black. He’s joining us on his way to Kansas City, Missouri. Bill is an Associate Professor of Economics and Law at the University of Missouri, Kansas City. He’s a white collar criminologist and a former financial regulator and author of The Best Way to Rob a Bank is to Own One. Thanks for joining us, Bill.
BILL BLACK: Thank you.
SHARMINI PERIES: So, Bill, it seems that in spite of this criminal negligence conviction of Miss Lagarde in France she’s going to continue to serve as a managing director of the IMF. Obviously, this white collar crime is not regarded as one. Your comments?
BILL BLACK: So, first, the IMF and the World Bank are the two giant international financial institutions. And, by long tradition, the United States gets to appoint the head of the World Bank — and it’s always an American — and the Europeans, the Western Europeans, get to appoint the head of the IMF and it’s always a Western European. And Miss Lagarde is actually the less embarrassing of the last two heads of the IMF. The other one — also French, Dominique Strauss-Kahn — eventually had to resign because he explained that his goal in life was to have orgies. And he didn’t believe that these 10 women came together to have this orgy with this group of business people because they were prostitutes. He thought they were just all volunteers and such. So this has been years — and by the way, Strauss-Kahn would currently be running the country of France but for an earlier problem, also while IMF head, when he engaged the services of a prostitute in a New York hotel. Or a woman who prostituted herself, in any event.
SHARMINI PERIES: Wasn’t he also charged with sexual assault of a hotel maid at that New York hotel?
BILL BLACK: Yes, but he was not, in fact, prosecuted for that and, indeed, there are reasons to believe that that claim was false. But the other claims about the orgies with the prostitutes, those are true, but don’t lead to prosecution.
So what’s the underlying problem? Back when she was a key minister, as you said, in the French government, there was a guy who was a business person who was in a dispute with a large French bank, Credit Lyonnais, that was largely owned by the state. So if he won, the state — then, in other words, the Government of France, the people of France — would lose. And she decided that this should be decided in an arbitration instead of the normal way it would proceed in which she would have not gotten any money. And he won spectacularly in front of this arbitration. Though, currently, his lawyer in that arbitration, and one of the arbiters, are under criminal investigation for corruption.
In the course of that win, even after he won spectacularly, and with hints of corruption, and even though Lagarde could have knocked out that award, she refused to do so. And he made off with what is now 404 million euros. In light of the investigation about the corruption, he’s been ordered to repay. And, of course, he’s repaid not one euro or old-style franc of any of that money. Instead, he’s gone into bankruptcy. So Lagarde’s negligence cost the French people over 400 million euros. And you would think that would be kind of important to the IMF because, essentially, she runs an operation that has very similar needs. But the IMF board made clear — even before the verdict — that it didn’t care. That she could be convicted and it wouldn’t change anything.
But there’s more to this. You talked about the fact that there are absolutely no sanctions imposed for costing the French people 400 million euros. But it’s worse than that. The prosecutors tried to drop the case, repeatedly. The judiciary refused to allow them to do so. At the conclusion of the trial, which was about 10 days ago or so, the French prosecutor in his closing statement, said the case was so weak against her, it should be dismissed. That’s the prosecutor.
SHARMINI PERIES: That was the position of her lawyer, too.
BILL BLACK: Well, she was her lawyer. She is a lawyer by training and she was largely representing herself. And so, the French judiciary said, “No. There’s plenty of evidence to go forward with a conviction.” And she was, in fact, convicted.
But you see, of course, power, and you see money — and the intersection of those things. If you’re sufficiently powerful, famous, tied into the political and economic establishment, you can cost your country hundreds of millions of dollars and nothing will happen to you, even if it’s proven in court that you did that. And, the whole big thing in conservative economics is reputation. You know, “People in power never do bad things because it would harm their reputation.” Well, she’s been found guilty — it’s an incredibly embarrassing saga, from her standpoint, from the IMF’s standpoint — and none of it matters in terms of reputation.
SHARMINI PERIES: Bill, the IMF board, or managing board, did not have to go overboard in its reassuring everybody that they still have confidence in her. I find this particularly problematic and difficult because one of the responsibilities of the IMF is to supposedly rein in corruption and to ensure that there’s good governance across the country that they lend money to. Now you have the person that is the head of the organization also caught up in this kind of a conviction and criminal negligence, how does it lead with this kind of reputation?
BILL BLACK: Well, because the IMF has also a reputation for its entire existence of not taking corruption seriously. So, yes you’re right, it’s not supposed to make these grants to the corrupt, but everybody knows that they have done so. And people that have blown the whistle on corruption are the people that got into trouble — not the corrupt folks. I will say there was an era at the World Bank, their rival, where the World Bank actually had a serious anti-corruption effort and took on a number of folks. Now, that effort ultimately was moderately squashed by other World Bank top leadership.
But you’re right to bring up corruption and it’s a much bigger problem at the IMF. So, unfortunately, their treatment that, “Corruption? Meh, you know, no reason to get excited. Certainly no reason to replace…” I mean, after all, after Dominique Strauss-Kahn and Lagarde, imagine who the French might send next to run the IMF. (laughs)
SHARMINI PERIES: All right. She’s still in this for another four years as the head of the IMF.
BILL BLACK: You can’t keep good folks down.
SHARMINI PERIES: All right, Bill, I thank you so much for joining us today.
BILL BLACK: Thank you. Take care.
SHARMINI PERIES: And thank you for joining us on The Real News Network.