Head of the IMF Christine Lagarde in court charged with embezzlement and fraud

The head of the International Monetary Fund arrived in the dock of a Paris courtroom today as she braced herself to be formally charged with embezzlement and fraud.

Christine Lagarde’s humiliation is not only a massive personal blow which could lead to her resignation, but one which will plunge the world’s banking system into further ignominy.

The clearly nervous 57-year-old said nothing to reporters as she entered the Court of Justice of the Republic, a special tribunal set up to judge the conduct of France’s government ministers,  shortly after 8.30am.

Lagarde faces a maximum sentence of 10 years in jail if found guilty of the very serious charges.

It was when she was President Nicolas Sarkozy’s finance minister that she is said to have authorised a 270 million pounds payout to one of his prominent supporters, so abusing her government position.

The money went to Bernard Tapie, a convicted football match fixer and tax dodger who supported Lagarde and Sarkozy’s UMP party.

It came after Dominque Strauss-Kahn, another senior French politician, was sacked as IMF chief following allegations that he attempted to rape a chambermaid in a New York hotel.

Ms Lagarde began campaigning to succeed Mr Strauss-Kahn soon after his arrest for the alleged crime.

But now it is Ms Lagarde, a lawyer and retired synchronised swimming star, who is facing a long court process of her own, as well as a possible jail sentence.

The scandal will not only pile further shame on France’s political class, but worry politicians and bankers desperately trying to resolve the global financial crisis.

Mr Tapie, the former head of adidas in France, claims he was cheated out of millions by Credit Lyonnais bank when the sports kit empire was sold in 1993.

In 2007, Ms Largarde ended the epic dispute by ordering a panel of judges to arbitrate and, in turn, they awarded Tapie the damages.

Opposition MPs were furious, with former presidential candidate Francois Bayrou accusing Ms Lagarde of ‘dipping into the taxpayers’ pocket for a private beneficiary.’

Mr Strauss-Kahn’s Socialist Party also accused Ms Lagarde of improper conduct, pointing to the fact that Mr Tapie was a vocal supporter of Sarkozy.

Ms Lagarde’s lawyer, Yves Repiquet, said the inquiry was ‘in no way incompatible’ with her new job, and expected the case to be dismissed.

Ms Lagarde denies any wrongdoing, saying before today’s court appearance: ‘If it’s decided to continue with this inquiry it won’t be particularly surprising. Personally, it doesn’t worry me at all – I didn’t benefit personally’.

But it has been widely reported in the French media that investigators intend to charge her with fraud and embezzlement.

Le Monde said that magistrates had already written to Mrs Lagarde to tell her that she should not expect any special treatment because of her high-profile international job.