Puerto Rico's largest bank will pay $21.6 million after allowing millions in drug money to be laundered because of its failure to report suspicious activity to the government, federal authorities said Thursday.

Deposits to accounts in Banco Popular often came in paper bags or gym bags stuffed with small bills, the Justice Department and other federal agencies said.

Under its agreement with the government, the bank admitted to violations of federal anti-money-laundering rules that require banks to notify authorities of suspicious transactions.

The bank, based in San Juan, has a year to pay the $21.6 million and show that it is continuing to comply with the rules. Otherwise, it will face possible criminal prosecution.

"Banks are our first line of defense against money launderers, drug dealers and even terrorists who would attempt to abuse our financial institutions," said Assistant Attorney General Michael Chertoff. "Banks that disregard their duty to conduct adequate due diligence and report suspicious financial activities allow themselves to be exploited for criminal purposes."

Between June 1995 and June 2000, several suspicious transactions were made by customers of the bank, which filed late or inaccurate reports of suspicious activities, the government said.

The untimely filings and errors "hindered law enforcement's ability to initiate investigations on these accounts in a timely manner, resulting in the laundering of millions of dollars of drug proceeds through these accounts," the agencies said in a news release.

In one series of transactions, Roberto Ferrario Pozzi, who was indicted in December 1998 for alleged money laundering, deposited some $20 million in cash in a Banco Popular account, the agencies said. They said that Ferrario Pozzi and employees of Phone Home, a phone card company, often made deposits in paper bags or gym bags full of cash.

The bank's president, Richard Carrion, was not in his office Thursday evening and not immediately available for comment, one of his assistants said.

The Treasury Department's Financial Crimes Enforcement Network, which will receive $20 million as a civil penalty from the total paid by the bank, said it was one of the largest such penalties it had assessed.

In a similar case, New York-based U.S. Trust Corp. agreed in July 2001 to pay $10 million in fines to settle regulators' allegations that its internal controls and recordkeeping were inadequate. But U.S. Trust, an old-line investment firm catering to wealthy families that is owned by brokerage Charles Schwab Corp., did not admit to any allegations in its settlement with the Federal Reserve and the New York State Banking Department.

The agreement with Banco Popular was announced by the Justice Department, the Treasury Department, the Internal Revenue Service, the U.S. Customs Service and the Fed, which has regulatory authority over the bank.