The probe centres on a €400m (£342m) arbitration payment to a supporter of Nicolas Sarkozy, the former French President, when Lagarde (pictured) was his finance minister.
She risks being placed under formal investigation for her decision to use arbitration to settle a long-running court battle between the state and businessman Bernard Tapie in 2007, Reuters reports.
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, Largarde ended the dispute by ordering a panel of judges to arbitrate and, in turn, they awarded the damages to Tapie, a vocal supporter of Sarkozy.
This decision drew criticism from the opposition party, who accused Lagarde of abusing her position to confer special treatment on Tapie.
Lagarde is not accused of profiting personally from the payout, but she is being questioned over the alleged misuse of public funds.
This is the second scandal to engulf the IMF in as many years. Lagarde’s predecessor at the helm of the Fund, Dominique Strauss-Kahn, left his post in 2011 amid allegations of sexual assault.
