French police have searched the Paris apartment of IMF chief Christine Lagarde, as they investigate her role in awarding financial compensation to businessman Bernard Tapie in 2008.
As finance minister, she referred his long-running dispute with bank Credit Lyonnais to an arbitration panel, which awarded him 400m euros (£340m) damages.
Mr Tapie was a supporter of ex-President Nicolas Sarkozy.
Critics say she abused her authority but Ms Lagarde denies any wrongdoing.
“This search will help uncover the truth, which will contribute to exonerating my client from any criminal wrongdoing,” Ms Lagarde’s lawyer, Yves Repiquet, told the Reuters news agency.
The BBC’s Christian Fraser in Paris says investigators suspect Mr Tapie was granted a deal in return for his support of President Sarkozy in the 2007 election.
There is speculation in France that Ms Lagarde could yet be placed under formal investigation in this case, he adds.
The origins of the case date back 20 years.
Mr Tapie, who has long been active in French business, sporting and political circles, sued Credit Lyonnais over its handling of the sale in 1993 of sportswear brand Adidas, in which he was a majority stakeholder.
After years in the courts, the case was referred by Ms Lagarde to an arbitration panel in 2007 and she approved its decision to award damages.
Public money
Critics said the case should not have been settled by private arbitration, since public money was at stake in the bank, which was part-owned by the state.
The settlement Mr Tapie received is believed to be a far greater sum than he would likely have received from the courts.
In an interview in January, Ms Lagarde stood by her decision, saying it was “the best solution at the time”.
Ms Lagarde replaced the disgraced IMF head Dominique Strauss-Kahn, who was arrested in New York in 2011 on allegations of attempted rape.
Mr Strauss-Kahn’s lawyers settled a civil case for an undisclosed sum and a criminal investigation was dropped by US prosecutors last year.
However, our correspondent says that Ms Lagarde’s position at the IMF could be in jeopardy if she is placed under formal investigation.
Her term as IMF chief does not expire until 2016, but amid the complexities of Europe’s economic crisis this is a distraction she can ill afford, he adds.
