The International Monetary Fund said yesterday it was investigating whether IMF managing director Dominique Strauss-Kahn abused his power in an affair with a subordinate who has since left the global institution.
The investigation comes as several countries turn to the IMF for financing to help ease the effects of the worst global financial crisis since the Great Depression and politicians consider the fund's role in preventing future crises.
The Washington-based lender said in a statement the investigation was ordered by Shakour Shaalan, head of the IMF's 24-member board, after the matter came to his attention during the summer. It is being handled by an outside law firm and is to be completed by the end of the month.
"All allegations, particularly those involving senior management, are taken extremely seriously," an IMF spokesman said. "The dean has asked external counsel to conduct an independent investigation and determine the validity of the allegations," the spokesman added.
Strauss-Kahn, a former French finance minister who came to the job just under a year ago, said he was cooperating with the investigation.
"With my full support, the IMF is examining an incident which occurred in my private life in January 2008," Strauss-Kahn said in a statement. "I have cooperated and am continuing to cooperate with outside counsel to the Fund concerning the matter."
"At no time did I abuse my position as the fund's managing director," he said. "I look forward to the report of outside counsel."
The IMF probe follows more than a year after former World Bank president Paul Wolfowitz was forced to resign amid a staff uproar over a high-paying promotion he authorised for his companion who worked at the bank.
The Wall Street Journal said the investigation involves Piroska Nagy, a senior economist at the IMF's Africa division until August. She resigned after the fund offered staff buyout packages, and is now working for the London-based European Bank for Reconstruction and Development, a regional bank.
The newspaper said Strauss-Kahn approached Nagy, who is married, in December 2007 and the two exchanged e-mails which led to the relationship early this year.
It said Nagy's husband, Mario Blejer, formerly governor of the Central Bank of Argentina and advisor to the Bank of London, found e-mail evidence of the affair when it ended.
The Wall Street Journal said Nagy's lawyer, Robert Litt of Arnold & Porter said his client "doesn't comment on her personal life".
The newspaper said the case was provoking criticism within the IMF because not all 24 members of the board were aware of the investigation until Friday.
Internal critics said members who had knowledge of the allegations may have been able to use that information in policy and funding disputes with Strauss-Kahn, the paper said.
Strauss-Kahn came to the IMF with a reputation as a ladies' man and his marriage to high-profile TV interviewer Anne Sinclair has guaranteed him tabloid coverage in France.
He returns frequently to France and is seen as someone who could take over as the next head of the Socialist party. An Opinionway poll released on Thursday said 60 per cent of French people thought French President Nicolas Sarkozy was managing the financial crisis well, but a quarter of those surveyed thought Strauss-Kahn would do a better job.
The IMF, whose mission is guardian of the international financial system, has been forced into the current crisis as it advises emerging and developing economies on how to deal with the spreading turmoil. In recent days four countries, Iceland, Hungary, Ukraine and Serbia, have turned to it for financing.