The Federal Reserve has told US banking giant Citigroup to delay big takeover plans until it tightens internal controls and addresses a slew of regulatory problems at home and abroad.

European regulators are examining a €12.4 billion bond trade that angered markets, and Japan forced Citigroup to shut its private bank in that country.

Meanwhile, a US Senate report this week said former Chilean dictator Augusto Pinochet had 63 accounts with the world's biggest bank as part of an intricate web to launder money.

Last year, Citigroup profit fell 5 per cent to $17 billion as the company set aside $4.95 billion for lawsuits over the collapse of WorldCom and Enron and other matters.

US regulators are examining activities at its mutual fund unit.

The Fed's admonishment may make it harder for Citigroup to grow.

It comes as chief executive Charles Prince implements a five-step plan to address compliance issues and increase training of the bank's roughly 285,000 employees.

The Fed said it "believes it important that management's attention not be diverted from these efforts by the demands that mergers and acquisitions place on management resources", the Fed said in approving Citigroup's purchase of First American Bank SSB of Bryan, Texas by a 6-0 vote. Chairman Alan Greenspan was among those who voted.

"The board expects that management at all levels will devote the necessary attention to implementing its plan fully and effectively and will not undertake significant expansion during the implementation period," the Fed added.

Mr Prince has said Citigroup will avoid "transformational" acquisitions but pursue smaller ones.

"Citigroup management needs to make the Fed comfortable with its progress," said Oliver Ireland, a partner at Morrison & Foerster LLP in Washington DC, and former Federal Reserve Board associate general counsel.

"The Fed is not saying Citigroup can't make acquisitions, but that it needs to address these issues before making big ones."