By Suzanne Barlyn

NEW YORK (Reuters) - Agricultural Bank of China Ltd <601288.SS> <ABOC.UL> will pay a $215 million penalty for violating New York state's anti-money laundering law, the state's financial regulator said on Friday.

Bank officials engaged in "intentional wrongdoing," including masking possibly suspicious transactions at its New York branch. Some transactions involved parties which are subject to U.S. sanctions, the New York State Department of Financial Services said.

The bank also "silenced" the branch's chief compliance officer, who raised concerns to managers about an "alarming" pattern of suspicious financial transactions, the regulator said. Among the transactions were payments from Yemen to Chinese companies and "unusually large" transfers between Chinese and Russian companies.

The bank, in a consent order with the regulator, agreed to put in an independent monitor to address "serious deficiencies," the regulator said.

Officials at Agricultural Bank of China and its New York branch could not be immediately reached for comment.

The bank holds total assets of about $2.8 trillion, including around $9.5 billion at the New York branch, New York state officials said.

Since 2013, the New York branch has cleared U.S. dollar transactions involving foreign correspondent banks in "rapidly increasing volumes," according to the consent order.

In dollar clearing, transactions in foreign currencies between parties are satisfied in U.S. dollars using a U.S.-based bank.

In 2014, the New York regulator warned the bank that its systems for monitoring suspicious transactions were inadequate, and told the bank not to boost its dollar-clearing business until it put improved surveillance measures in place.

While the practice is common, dollar-clearing can be risky for banks since it can be used by criminals and militant groups planning attacks to launder and move money.

"The bank willfully ignored (the state's) warning and dollar-clearing transactions by the bank at the New York Branch skyrocketed in 2014 and 2015," the regulator said.

Agricultural Bank of China's tactics to mask transactions included sending coded messages through an international wire messaging system which compliance staff use to screen and monitor financial activity.

The compliance officer, whom the regulator did not identify, believed that many of the "opaque" transactions involved bank customers whose identities should have been disclosed for monitoring purposes.

In once instance, a Turkish bank processed dollar transactions for an Afghan bank customer which is known by the U.S. Treasury Department for its ties to a network associated with drug traffickers and illicit cash flows.

Branch managers, in response to the compliance officer's concerns, directed the officer not to communicate with regulators.

The compliance officer left in June, 2015.

One month later, New York bank examiners discovered an "unmanageable" backlog of nearly 700 potentially suspicious transactions that had not yet been investigated.

(Editing by Jeffrey Benkoe and Bill Rigby)