French authorities have formally opened a negligence investigation into Christine Lagarde, the head of the International Monetary Fund (IMF).
She has been questioned about her role in awarding 400m euro (£318m; $527m) in compensation to businessman Bernard Tapie in 2008. She denies wrongdoing.
Ms Lagarde, 58, was finance minister in President Nicolas Sarkozy’s government at the time of the award.
Mr Tapie supported Mr Sarkozy in the 2007 presidential election.
He was once a majority shareholder in sports goods company Adidas but sold it in 1993 in order to become a cabinet minister in Francois Mitterrand’s Socialist government.
Mr Tapie sued Credit Lyonnais over its handling of the sale, alleging the partly state-owned bank had defrauded him by deliberately undervaluing the company.
His case was later referred by Ms Lagarde to a three-member arbitration panel which awarded the compensation.
Investigators suspect he was granted a deal in return for his support of Nicolas Sarkozy.
Ms Lagarde said last year that her decision to refer Mr Tapie’s long-running dispute with Credit Lyonnais to a panel of judges was “the best solution at the time”.
Although being placed under formal investigation does not necessarily lead to charges, the development could raise questions about the rest of her term at the IMF, which is due to end in 2016.
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