American Express Co. agreed to pay $65 million for failing to detect drug-related money transactions laundered through a subsidiary over several years, U.S. authorities said on Monday.

The unit, American Express Bank International (AEBI), entered into a deferred prosecution agreement with the Department of Justice to resolve a charge that it failed to maintain an effective anti-money laundering program.

The AEBI's anti-money laundering program had serious and systemic deficiencies, the U.S. Federal Reserve said in a cease-desist order, citing findings from a Justice Department investigation.

The Justice Department found specific instances of suspicious or illicit activity in drug-related money laundering transactions, moved through Black Market Peso Exchange wire transfers which were part of an undercover law enforcement operation, according to the Fed's order.

Its transaction monitoring system and internal controls were inadequate to detect, identify, and report money laundering activity, the Fed statement said, referring to findings from a probe of transactions from December 1999 through April 2004.

U.S. authorities said the Miami-based bank, which offers traditional private banking services mainly to wealthy customers in Latin America, acknowledged the lapses.

Company officials could not be reached for comment.

The bank's action allows the Justice Department to dismiss the charge for 12 months as long as the bank fully implements a significant anti-laundering program, they said.

Financial institutions such as banks, credit unions and casinos are required to establish effective anti-money laundering programs under the Bank Secrecy Act (BSA).

The BSA law also requires institutions to report any transactions bank employees deem suspicious and report movements of money involving at least $10,000.

Banks have long complained that BSA requirements are costly and time-consuming for their employees who have to file numerous reports with law enforcement.

U.S. financial authorities including the Financial Crimes Enforcement Network, or commonly known as FinCEN, are seeking to retool some requirements for small banks with little or no international business.

Today an established and respected financial institution learned a valuable lesson about its legal responsibilities, said Karen Tandy, head of the Drug Enforcement Administration.

The bank will be required to hire an independent consultant to conduct a full review of its program, according to the Fed. It might also require adding staff and provide more training.

American Express shares rose $2.74 higher, or 4.8 percent, to $60.23 Monday on the New York Stock Exchange