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SANTIAGO -(Dow Jones)- The U.S. Federal Reserve on Wednesday said it ended a " cease and desist" order against Banco de Chile (NYSE:BCH) (BCH) in relation to accounts at the bank's local and former U.S. branches attributed to the late Chilean dictator Gen. Augusto Pinochet.

The cease-and-desist order, which forced the bank to halt any supposed illegal activity, was issued in 2005 in relation to investigation of money laundering allegedly connected to the former dictator.

A spokesman for the Chilean bank said the financial institution wouldn't comment on the Fed's decision.

Pinochet and his former executor Oscar Aitken reportedly held several accounts at Banco de Chile's (NYSE:BCH) Miami and New York branches, which the bank agreed to close in 2005. That year, a lawsuit was filed against the bank for allegedly helping Pinochet launder funds. At the time, Banco de Chile (NYSE:BCH) agreed to pay a $3 million fine raised by the U.S. Treasury's Financial Crimes Enforcement Network for violating money-laundering banking regulations.

A person familiar with the situation, who asked to not be identified, said the U.S. branches no longer belonged to the bank as they had been sold to Citibank (NYSE:C) as part of 2007 deal where Citigroup Inc. (NYSE:C) (C) took a 10.44% stake in Banco de Chile (NYSE:BCH) and the Chilean bank acquired Citibank's (NYSE:C) local assets.

Under the terms of the Banco de Chile-Citigroup deal, the Chilean bank took over all of Citibank's (NYSE:C) local clientele, while the U.S. bank retained control of Banco de Chile's (NYSE:BCH) operations on U.S. soil. Banco de Chile (NYSE:BCH) has no plans to open new branches in the U.S., as its clients now have access to Citibank's (NYSE:C) global banking network through the deal, a Banco de Chile (NYSE:BCH) spokeswoman said.

The board of the U.S. Federal Reserve, the Office of the Comptroller of the Currency, part of the U.S. Treasury, and the Federal Deposit Insurance Corporation had approved the operation.

"When the Citibank (NYSE:C) sale was approved, the Fed's actions against Banco de Chile (NYSE:BCH) basically ended," the person said. He added the U.S. regulatory approval implied the order to halt the alleged activity was rescinded and that Banco de Chile (NYSE:BCH) had been expecting the formal notice of this action.

Banco de Chile (NYSE:BCH) is the country's second-largest bank in terms of loans.

-By Carolina Pica, Dow Jones Newswires; 56-2-460-8544; carolina.pica@ dowjones.com

    (END) Dow Jones Newswires   06-04-08 1640   Copyright (c) 2008 Dow Jones & Company, Inc.