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A gold trading business suspected of money-laundering deposited £700,000 in cash into one NatWest branch in black bin bags, a court heard on Monday.
A criminal gang deposited huge sums of cash across about 50 branches, prosecutors for the UK's financial watchdog said.
NatWest said it deeply regrets failing to monitor the customer properly.
It is the first time a financial institution has faced criminal prosecution by the Financial Conduct Authority (FCA) under anti-money laundering laws in the UK.
Comment: What's most surprising is that the FCA actually prosecuted them, because the crash of 2008 exposed the rampant corruption and criminality at UK financial institutions, particularly at the top levels, and that regulators have been complicit. However, perhaps they did so because, relatively, those involved were small fry and this didn't implicate any major players, and the bank basically got off with just a fine.
The fine would have been much higher, but it was reduced because the bank had pleaded guilty, the judge said at the sentencing hearing.
Image source, ReutersImage caption, Chief executive Alison Rose said NatWest took financial crime extremely seriously
NatWest, which is part of the Royal Bank of Scotland group, pleaded guilty to three offences under UK money-laundering regulations in October.
The bank's chief executive Alison Rose said: "NatWest takes its responsibility to prevent and detect financial crime extremely seriously.
"We deeply regret that we failed to adequately monitor one of our customers between 2012 and 2016 for the purpose of preventing money-laundering."
She added that while the case had come to an end, the bank would continue to invest in fighting financial crime.
Lack of reporting
Bradford jewellers Fowler Oldfield's predicted annual turnover when taken on as a client by NatWest was £15m. But it deposited about £365m over five years, including £264m in cash.
The company, which was shut down following a police raid in 2016, was initially marked as "high-risk", but that was downgraded in December 2013.
The FCA's lawyer Clare Montgomery said there "was a rapid escalation in the amount of cash" being deposited from November 2013, with figures reaching up to £1.8m a day. By 2014, Fowler Oldfield was NatWest's "single most lucrative" client in the Bradford area.
Southall received about £42m in cash between January 2015 and March 2016, for example, but no report was made that it was suspicious.
That is despite lawyers saying earlier on Monday that one person in Walsall arrived at a branch with so much cash, packed in bin-liners, that they broke and the money had to be repacked.
Ms Montgomery added that the cash did not even fit in the branch's floor-to-ceiling safes.
NatWest did not properly look into numerous warnings generated by its systems, the FCA lawyer said earlier on Monday.
One rule designed to flag suspicious activity was disabled by the bank because it created too many alerts, "so the bank decided it should be deactivated", Ms Montgomery added, while NatWest also recorded cash deposits by Fowler Oldfield as cheques between 2008 and March 2017.
Comment: It seems highly likely that someone at the bank knew this activity was worth an investigation but, for whatever reason, this was never done.
The National Crime Agency also raised concerns at one point because of the high number of Scottish banknotes being deposited in England, the court heard.
And a NatWest cash centre in north-eastern England raised queries about Scottish banknotes, saying that they had a "musty smell", suggesting they might have been stored rather than in normal circulation.
The state-backed bank was "in no way complicit in the money-laundering which took place", the judge said at Southwark Crown Court on Monday.
But they added: "Without the bank's failings, the money could not have been laundered."
Sara George, partner at Sidley and a former prosecutor for the Financial Services Authority, told the BBC that it was clear there were failings at every level.
"It's hard to imagine a much more clear indication of criminal proceeds than black bin-liners of money. It's extraordinary," she said.
She added that the "landmark" case showed that the UK's financial watchdog was "committed to using a fuller spread of its enforcement powers" to stop money-laundering, which she described as "anything but a victimless crime".
The whole thing stinks and amounts to nothing in the end. Just a BS story with no real consequences for the people at the bank.
Evil Rules!