The 30-year-old Smith had been reported as being offered a $2 million deal from Pau in November. He had also been linked to Munster, although that rumour was quickly quashed.
He would join fellow World Cup winner Conrad Smith at Pau. The club also includes another former All Black backs Colin Slade and Tom Taylor.
New Zealand Rugby is currently in a battle to keep Smith, Aaron Cruden and Israel Dagg, who come off contract at the end of this year.
Smith has played 60 tests for the All Blacks and turned out 120 times for the Highlanders.
- Otago Daily Times and NZ Herald