A special court ruled in December that Lagarde should stand trial, but she appealed. France’s Court of Cassation on Friday rejected the appeal.
Lagarde’s lawyers did not immediately respond to the decision. Lagarde, who was in China on Friday at a Group of 20 summit, has said she had acted “in the best interest of the French state and in full compliance with the law.”
The unusually generous 2008 arbitration deal, paid from public funds, prompted years of legal disputes that remain unresolved.
The investigation began in 2011, soon before Lagarde was named to head the IMF in the wake of sexual assault allegations against her predecessor, French economist Dominique Strauss-Kahn. The executive board of the IMF has expressed confidence in Lagarde despite the investigation.
The decision last year to send her to trial had come as a surprise because a prosecutor had earlier argued that the case against her should be dropped.
“Negligence” by a person invested with public authority carries a risk of up to a year in prison and a 15,000 euro ($16,500) fine.
She will be tried at the Court of Justice of the Republic, a special body that tries government ministers for alleged wrongdoing while in office. A date has not been set for the trial.
The case is part of a larger legal saga centering on Tapie, a flamboyant magnate and TV star who had sued French bank Credit Lyonnais for its handling of the sale of his majority stake in sportswear company Adidas in the mid-1990s. With Lagarde’s approval, a private arbitration panel ruled that he should get 400 million euros in compensation, including interest.
The deal was seen by critics as a sign of a too-close relationship between magnates and the French political elite. Tapie was close to then-President Nicolas Sarkozy, Lagarde’s boss.