The London-listed Standard Chartered bank has been accused of violating US laws by conducting more than £160bn worth of secret transactions with Iranian entities.
Officials in New York state said a banking unit of Standard Chartered bank (SCB) conducted transactions in violation of US anti-money laundering laws.
It said the bank's officials lied to investigators and that it may lose its licence to operate in New York state.
The Department of Financial Services said the transactions "left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes".
It said: "For almost ten years, SCB schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion (£160bn), and reaping SCB hundreds of millions of dollars in fees.
"SCB's actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity."
The news was announced just before the FTSE 100 stock market in London closed, with shares in the bank plunging more than 6%.
Just weeks ago HSBC paid large fines for money-laundering in the US, including the transportation of $7bn in cash from Mexico within two years - much suspected of coming from drug cartels.
Barclays bank was also fined £290m for its role in fixing the inter-bank Libor interest rate.
Separately, British banks have been forced to pay out and make provision for billions in compensation to UK retail customers for mis-selling payment protection insurance.
Small business customers have also been mis-sold interest swaps by Britain's banks and due to receive compensation.
