A black Metropolitan Police officer, who was cleared of an £80 expenses fiddle, is to receive a six figure sum in compensation.
CI Logan has an MBE for helping develop anti-racist policies
Chief Inspector Leroy Logan, who is also chairman of the Metropolitan Black Police Association (MBPA), was alleged to have filed a false claim for a hotel bill.
His solicitor Sadiq Khan says the Met had spent "hundreds of thousands" on investigating the claim - although the force insists less than "a five-figure sum" was spent.
The investigation into Mr Logan's affairs was carried out as part of the four-year, multi-million pound inquiry into Iranian-born Superintendent Ali Dizaei, who was cleared of dishonesty charges at the Old Bailey in September, Mr Khan said.
He added that Mr Logan's active support for Mr Dizaei - who is returning to Scotland Yard after receiving an £80,000 payout - resulted in a disciplinary and criminal investigation into his affairs that began in June 2001.
Five months later, Mr Logan, who has an MBE for his role in the development of anti-racist policies, was cleared and he launched a claim for racial discrimination and victimisation.
An employment tribunal hearing was due to start on Monday.
A joint statement released by the Met and Mr Logan read: "This settlement acknowledges that it is not in the public interest to defend the case of racism and victimisation that was put by Chief Inspector Logan.
"The Metropolitan Police Service is pleased to confirm that the conclusion of this investigation leaves Chief Inspector Logan's integrity and reputation demonstrably intact."
Mr Khan told BBC News Online: "On the one hand we are pleased to avoid the tribunal case, that had been a tortuous exercise for the Met police.
"On the other hand we are disappointed that it has taken this long for the case to be settled.
"The facts that form the basis of this case began more than two years ago but it is only at the eleventh hour that the Met Police decide they had no real justification for bringing the case against CI Logan.
"CI Logan wants to draw a line underneath this matter and move forward within the Met.
"Lessons must be learnt because this must never be allowed to happen again."
In a separate statement, Deputy Assistant Commissioner Carole Howlett said the settlement would "build a platform" for the Met and the MBPA to continue to work together to benefit London policing.
She added that there had been a 49% increase in the numbers of officers from ethnic minorities in the last two years.
"A simple glance around our current workforce cannot fail to remind you how much the Met has changed - it is vital that everyone pulls together to maintain this momentum."