By Pete Schroeder, Ismail Shakil and Saeed Azhar

Oct 13 (Reuters) – Bank of America has been fined $1.21 billion by US regulators for widespread failures to detect potential money laundering and other illicit activity, a penalty the bank said will hurt third-quarter ‌earnings.

The Treasury Department said the fine, the third-largest in department history, is due to the bank’s failure to report more ‌than $5 billion in suspicious activity to the government, including $1 billion that posed national security-related and other priority illicit finance risks.

“Financial institutions are on the front lines of protecting our ​economic and national security,” Treasury Secretary Scott Bessent said in a statement. “When a bank of this size fails to meet its anti-money laundering and sanctions obligations, the consequences extend far beyond its own walls, exposing the entire US financial system to significant illicit finance risks.”

The Treasury said the bank “prioritized its revenues” in building compliance programs, and overly relied on inquiries from outside parties like law enforcement and other financial institutions instead of its own internal ‌controls.

The consent order requires Bank of America to hire ⁠an independent third party to review past transactions, identify suspicious activity that the bank failed to detect at the time, and report those transactions to FinCEN.

“Financial crime compliance is serious, and we are responsible for getting it ⁠right,” said a Bank of America spokesperson in a statement. “We have invested billions of dollars in technology and dedicated thousands of employees to combat financial crime, and our team is far along with and committed to completing the work required to address the issues raised by our regulators.”

The spokesperson added that ​the bank’s ​third-quarter results due for release on Wednesday will include a non-tax-deductible charge of $1.2 ​billion, which will reduce quarterly net income by approximately ‌17 cents a share.

Analysts have estimated adjusted EPS of $1.10, according to mean estimates compiled by LSEG, but that excludes one-offs like this fine.

Shares were down 2.7% in after-hours trading after closing the day down 1.1%.

The penalty is likely to add to negative investor sentiment and raise concerns about higher expenses and whether Bank of America can maintain its roughly $6 billion quarterly share buyback pace, UBS analyst Erika Najarian said in a note.

With earnings due on Wednesday, “we think shares likely underperforming at open,” she said.