Switzerland is to hand over $535 million (SFr886 million) to Nigeria, blocked in Swiss bank accounts relating to the late Nigerian dictator, Sani Abacha.
The Swiss authorities said the Nigerian government signed an out-of-court settlement with some of the defendants in the Abacha case.
A statement published by the Federal Justice Office in Bern on Wednesday said Nigeria would abandon criminal proceedings against any persons taking part in the deal. Nigeria would also drop requests for legal assistance from Switzerland and other countries.
As a result of the settlement, Switzerland has agreed to return assets worth $535 million deposited by Abacha and his business associates in Swiss accounts.
The sum represents about half of the total amount frozen during an international investigation against Abacha. The remainder is held in other countries, including Britain, Luxembourg and Liechtenstein, as well as in offshore accounts in Jersey.
The unblocked assets in Switzerland will be transferred to the Bank for International Settlements in Basel, before being handed over to the Nigerian authorities.
A lawyer for the Nigerian government described the deal as "unique" and praised Switzerland for its "decisive" role in resolving the affair.
$100 million for Abacha family
As part of the settlement, around $100 million will be handed back to the Abacha family. According to the Nigerian authorities, this money was not linked to criminal acts and was acquired by the family prior to Abacha's five-year rule, which ended in 1998.
However, the Swiss judicial authorities say they will continue proceedings against any persons not participating in the settlement between the Nigerian government and the Abacha family.
The justice ministry said Abdulkadir Abacha, a brother of the late dictator, remained under investigation. Assets worth around $90 million will continue to remain frozen in Switzerland.
The Abacha case, which came to light in 1999, is seen as a particular embarrassment for the Swiss authorities. It is the biggest money laundering scandal to have hit Switzerland involving a foreign head of state.
The late dictator and his associates salted away around $670 million in Swiss bank accounts alone, despite the introduction in 1998 of new anti-money laundering regulations in Switzerland.
Three years ago, the Nigerian government called on Switzerland to provide legal assistance in an inquiry into a financial network allegedly set up by Abacha. He was believed to have embezzled the money from the Nigeria's central bank during his rule.
The Swiss authorities responded by ordering a freeze of assets held in banks in Zurich and Geneva, and handed over banking documents to Nigeria.
Further accounts were blocked during the course of the investigation. Later on, funds worth $70 million were returned to Nigeria.
Five people have been indicted and at least 60 others investigated in Switzerland's three-year probe of Abacha-linked accounts. Three financial intermediaries have been convicted, according to Bernard Bertossa, a leading Swiss prosecutor.
Switzerland was involved in a similar case of illegal flight capital in the 1980s involving the late Philippines dictator, Ferdinand Marcos.
After a 12-year legal battle - four times the length of the Abacha inquiry - the Swiss authorities in 1998 transferred about $600 million worth of assets to an escrow account in the Philippines. The funds had been blocked in Switzerland since 1986.
by Urs Geiser with agencies