Lloyds TSB is to pay a $350 million (£230 million) fee to US authorities after admitting to facilitating illegal money transfers into the US.

The UK bank has acknowledged “criminal conduct” and is paying the funds as part of a settlement into an investigation into its operations.

US prosecutors said the bank had been involved in transferring money on behalf of clients in Iran, Libya and Sudan, whom the US government had banned institutions from dealing with.

They added that Lloyds TSB, which is partly owned by taxpayers after it was bailed out by the government in October, had removed details such as customers names and addresses so that electronic fund transfers could be processed in the US.

Commenting on the case, acting assistant attorney general Matthew Friedrich said: “For more than 12 years, Lloyds facilitated the anonymous movement of hundreds of millions of dollars from US-sanctioned nations through our financial system.

“More than $350 million moved from places such as Iran through locations around the world because Lloyds stripped identifying information from international wire transfers that would have raised a red flag at US financial institutions,” he added.

In a statement, the bank said: “We are committed to running our business with the highest levels of integrity and regulatory compliance across all of our operations, and have undertaken a range of significant steps to further enhance our compliance programmes.”

Lloyds TSB and HBOS are set to become the UK’s largest bank as the two firms finalise a merger.