Paul Wolfowitz has agreed to step down as head of the World Bank following three days of intensive discussions with the bank's board.
Mr Wolfowitz had been criticised for organising a large pay rise for his partner, who is an employee of the bank.
The former US deputy defence secretary, appointed by US President Bush to head the bank just two years ago, will step down at the end of June.
He had been fighting claims of corruption for personally ensuring his partner received a larger than normal pay increase when she was relocated from her job at the World Bank.
But in a carefully worded statement last night, the executive directors of the Bank said they accepted that Wolfowitz had 'acted ethically and in good faith.'
The statement also said mistakes had been made by a number of individuals and that the 'bank's systems did not prove robust to the strain under which they were placed'.
In his statement, Paul Wolfowitz said it was now necessary 'to find a way to move forward'.
The US Treasury Department and the White House have started the search for a replacement president. The head of the World Bank is traditionally a US citizen.
