Citigroup Inc., the world's largest bank, was forced to close its private banking operations in Japan after the nation's financial regulator reported it had found "serious" breaches.

The Financial Services Agency penalized the bank for failing to conduct proper checks against money laundering in one customer account. It also uncovered fraud in a Citigroup unit that has about 400 employees who cater to wealthy individuals in cities including Tokyo.

Citigroup apologized.

"This is going to damage Citigroup's image in Japan and may hurt their other businesses there," said Yoji Takeda, who helps manage $250 million as head of Japanese equities at RBC Investment Management (Asia) Ltd. in Hong Kong. "Private banking is new in Japan, but it's lucrative and Japanese companies are starting to get into it."

Citigroup's private bank provides services for wealthy customers who have more than 100 million yen -- about $909,256 -- of financial assets in the world's second-biggest economy.

The infractions by Citigroup included failing to properly check clients. It "allowed transactions that could be suspected of being associated with money laundering by permitting an account to be opened without proper account procedures," the FSA said.

"The episode provides more evidence that the company needs to work on strengthening controls, not just in the U.S. but also globally," Deutsche Bank AG analyst Richard Strauss, who rates Citigroup shares "buy," said in a note to clients today. "Nevertheless, we do think the situation in Japan is contained."

Citigroup's private bank operates out of a branch in Marunouchi in central Tokyo and offices in Nagoya, Osaka and Fukuoka, according to its Japanese Web site.

No other action was taken against Citigroup's retail bank. Its investment banking operations were not affected.