WASHINGTON (Reuters) - Bank of America Corp's banking unit (>> Bank of America Corp) agreed to pay $16.6 million to resolve allegations that it processed several hundred transactions for drug traffickers who are subject to U.S. sanctions, the U.S. Treasury Department said on Thursday.

The bank processed around $91,000 in transactions for six designated narcotics traffickers between 2005 and 2009, and failed to file timely reports on accounts owned by four others, the department's Office of Foreign Assets Control (OFAC) said.

Bank of America spokesman Lawrence Grayson said the settlement concluded a matter the bank addressed in 2009 by improving its sanctions-related systems and controls.

In announcing the settlement, OFAC said it determined that 79 transactions the bank processed after October 2006 constituted an "egregious" case, because the bank knew of a problem with its screening tool, but didn't fix it until more than two years later.

OFAC said the bank could have faced a penalty larger than $83 million, but that it reduced the penalty because of the bank's efforts to fix its problems, and because some of the transactions might have been eligible for an OFAC license.

Global banks have paid huge sums in recent years over allegations that they violated U.S. sanctions. Most recently, BNP Paribas (>> BNP PARIBAS) agreed to pay $8.9 billion to resolve criminal and civil charges that it violated U.S. sanctions on Sudan and other countries.

(Additional reporting by Peter Rudegeair in New York; Editing by Susan Heavey and Nick Zieminski)

By Aruna Viswanatha

Stocks treated in this article : BNP PARIBAS, Bank of America Corp