Bernard Crofton, former director of housing in Hackney, east London, accused Sam Yeboah, the council's former head of personnel, of placing "his crooks" in council jobs.
Mr Crofton, brought in by the council to investigate housing fraud, developed what an industrial tribunal described as "a fixed mental impression that Africans, particularly West Africans, have a propensity to commit fraud".
When the tribunal upheld Mr Yeboah's claims of persistent racial harassment, the council agreed to pay him pounds 380,000 in compensation.
Yesterday, the tribunal ordered Mr Crofton to pay damages of pounds 45,000 with pounds 14,000 interest for those issues on which it was found he alone was responsible. The highest previous award made in similar circumstances was pounds 1,000.
In its 300-page judgment, the tribunal said that one of the striking features of the case was "the number and persistence of false allegations".
At a meeting in September 1994, Mr Crofton told Hackney's chief executive that Mr Yeboah should be made to apologise to the council because "[He] had put his crooks into jobs".
Mr Crofton continued his onslaught during the tribunal hearings when he cross- examined Mr Yeboah, making a series of allegations which the tribunal said were "demonstrably false".
The tribunal concluded that Mr Crofton's behaviour was grossly offensive. It said it caused Mr Yeboah great distress and damaged his reputation.
Mr Yeboah, who is now unemployed, said of the decision: "I hope that it will send a clear message to people who discriminate against fellow workers on racial grounds that there may be a serious price to pay."Reuse content