French magistrates decided on Friday not to place IMF chief Christine Lagarde under formal investigation over her role in a 285-million-euro ($368.5 million) arbitration payment made to a supporter of former president Nicolas Sarkozy.
Lagarde instead was given the status of a "supervised witness" after two full days of questioning on her 2008 decision as Sarkozy's finance minister to use arbitration to settle a legal battle between the state and businessman Bernard Tapie.
The decision removes a headache for Lagarde, the only French national heading a major international institution today, and for the International Monetary Fund (IMF), for which a formal investigation of her would have been highly embarrassing.
Emerging from a Paris court late on Friday evening, a composed-looking Lagarde read from a statement asserting that she had not acted against the public interest.
"My explanations answered questions raised about the decisions that I had made at the time," she told reporters. "My status as a supervised witness is not a surprise for me because I always acted in the interest of the state and according to the law."
She added: "Now, it's time for me to go back to work in Washington, and I will of course be briefing my board."
The status of supervised witness means that in any future hearings, Lagarde would answer questions as a witness accompanied by a lawyer.
It is much less serious than being placed under formal investigation, which would have indicated "serious or consistent evidence" pointing to her probable implication in a crime.
The IMF reaffirmed its confidence in Lagarde, who took over the helm after her predecessor, Frenchman Dominique Strauss-Kahn, quit in mid-2011 over a sex assault scandal.
"The Executive Board has been briefed on this matter several times and on each occasion expressed confidence in the Managing Director's ability to effectively carry out her duties," spokesman Gerry Rice said in Washington.
The case goes back to 1993 when Tapie, a colorful and often controversial character in the French business and sports world, sued the state for compensation after selling his stake in sports company Adidas to then state-owned bank Credit Lyonnais.
Also a one-time Socialist minister who later supported the conservative Sarkozy, Tapie said the bank defrauded him after it resold the stake for a much higher sum. Credit Lyonnais, now part of Credit Agricole, has denied wrongdoing.
Lagarde was not accused of financially profiting herself from the payout and has denied doing anything wrong by opting for an arbitration process that enriched Tapie. With interest, the award amounted to 403 million euros.
However the court, which specializes in cases involving ministers, targeted her for complicity in the misuse of funds because she overruled advisers to seek the settlement.
Tapie told the BFM news channel he would not comment on a legal decision, but he angrily berated a commentator who said it meant that he could keep his money from the payout. He told French media that he only had 100 million euros left.
Arbitration specialist Thomas Clay noted, however, that Lagarde had not been cleared of involvement in the controversial settlement and there was a still a possibility she could be placed under investigation if new evidence came to light.
"She could be brought before the court again, or not," he said. "For the moment we are at the inquiry stage."