The UK operations of Bangladesh's biggest bank, Sonali Bank, have been banned from accepting deposits from any new customers for 24 weeks.
The Financial Conduct Authority said the bank had failed to put anti-money laundering controls in place.
The bank has been fined £3.3m and its top anti-money laundering official, Steven Smith, has been banned from any similar job in banking.
But its main business, remitting cash to people in Bangladesh, is unaffected.
Sonali Bank currently has three UK branches - in London, Birmingham and Bradford - which are aimed at serving the expatriate Bangladeshi community.
It is 51 per cent owned by the Bangladesh government.
An FCA investigation found that the bank's failure to operate proper controls against potential money laundering had taken place despite previous warnings from the regulator as long ago as 2010.
‘Sonali Bank failed to maintain adequate anti-money laundering systems between August 20, 2010 and July 21, 2014,’ said the regulator.
‘The FCA found serious and systemic weaknesses affected almost all levels of its AML control and governance structure, including its senior management team, its money laundering reporting function, the oversight of its branches and its AML policies and procedures.’
‘This meant that the firm failed to comply with its operational obligations in respect of customer due diligence, the identification and treatment of politically exposed persons, transaction and customer monitoring and making suspicious activity reports,’ the FCA added.
To make matters worse, the bank also failed to tell the FCA for at least seven weeks of an allegation of ‘significant fraud’ against a customer at the bank.
The bank's board and senior management were criticised for failing to take the requirements of the anti-money laundering rules sufficiently seriously.
Smith, the bank's money laundering reporting officer, was personally fined £17,900.
Despite the fact that he had been overworked, the regulator found that Smith was responsible for failing to heed warnings from the bank's own internal auditors.
The FCA said that he also failed to put proper AML controls in place; did not notice that bank staff were unaware of what to do about money laundering; told his own board and senior management that controls were working when they were not; and failed to recruit more staff when he should have done so.
Sonali Bank announced last December that it would stop taking on any new non-business customers and it will operate only two branches by the end of this year.
The regulator said the bank had agreed to improve its AML procedures, including taking on new senior staff, using outside experts and giving staff refresher training.
Sonali Bank was permitted to resume banking operations in Britain in 2001 after its operations had been closed down two years earlier because of charges of gross irregularities.
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