Paris - The International Monetary Fund is investigating its boss, Dominique Strauss-Kahn, to see whether he abused his position in connection with a sexual relationship with a subordinate, the Wall Street Journal said on Saturday.
The IMF is under the spotlight as several countries have turned to it for finance to help ease the effects of a global financial crisis and politicians consider the fund's role in preventing future crises.
The paper said the IMF had hired the law firm Morgan, Lewis & Bockius LLP in late August to carry out the investigation which is expected to be completed by the end of October.
The probe was sought by A Shakour Shalaan, who represents Egypt and other Arab countries on the IMF board with the advice of the US and Russian representatives, the paper said.
"There was an allegation concerning improper behaviour of a personal nature on the part of the managing director," it quoted IMF chief spokesperson Masood Ahmed as saying.
"All allegations, particularly relating to senior management, need to be investigated."
In a statement, Strauss-Kahn, a respected economist, said: "I have cooperated and am continuing to cooperate with outside counsel to the Fund concerning this matter."
He said the "incident which occurred in my private life" took place in January 2008. "At no time did I abuse my position as the Fund's managing director."
The Wall Street Journal said the case was provoking criticism within the IMF because not all 24 members of the board were aware of the investigation until Friday.
Criticism
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.
It said the probe concerned Strauss-Kahn's relationship with Piroska Nagy, who at the time was a senior official in the IMF's Africa department.
She resigned in August as the IMF reduced the size of its work force and now works at the European Bank for Reconstruction and Development.
The investigation is looking at whether Nagy, who is married to Argentine-born economist Mario Blejer, got a larger severance package than would otherwise have been expected.
The newspaper quoted a source saying the investigating law firm hadn't found evidence that the severance package was inappropriate.
The investigation also looks at whether she was pressured to leave her job, whether Strauss-Kahn showed favouritism towards her or whether he sought retribution.
Robert Litt, Nagy's lawyer said: "She received no special treatment of any kind, either favourable or unfavourable."
Investigators are also looking into allegations that he showed favouritism to another female employee.
Strauss-Kahn is a former French finance minister who made an unsuccessful attempt to be the candidate for his Socialist party in the 2007 presidential elections.
His appointment to head the IMF in September 2007 was backed by his erstwhile enemy President Nicolas Sarkozy.
Sarkozy will meet US President George W. Bush in Washington this weekend to discuss the financial crisis and ways to reform the international financial system, including the IMF.
The investigation follows the resignation in June 2007 of World Bank President Paul Wolfowitz over a promotion and pay rise for his long-term companion who worked at the institution.
Strauss-Kahn's predecessor at the IMF, Spaniard Rodrigo Rato, stepped down suddenly in June 2007 for personal reasons, ending his five-year term prematurely.
The results of the investigation will be distributed to the IMF board when it has been completed.
"If the allegations (that he abused his position) are true, I think (Strauss-Kahn) would have to go," Michael Mussa, former IMF chief economist told the newspaper.
- Reuters