Bannon and three others defrauded hundreds of thousands of donors in connection with the "We Build the Wall" campaign, which raised $25m, the US Department of Justice (DoJ) said, reports BBC.
Bannon received more than $1m, at least some of which he used to cover personal expenses, the DoJ said. He is due to appear in court later.
He was a key architect of Trump's 2016 presidential election victory. His right-wing anti-immigration ideology fuelled Trump's "America First" campaign.
Audrey Strauss, the Acting US Attorney for the Southern District of New York (SDNY), said Bannon, Brian Kolfage, Andrew Badolato and Timothy Shea had "defrauded hundreds of thousands of donors, capitalising on their interest in funding a border wall to raise millions of dollars, under the false pretence that all that money would be spent on construction".
Bannon had received more than $1m through a non-profit organisation he controlled, at least some of which he used to cover "hundreds of thousands of dollars in Bannon's personal expenses", the DoJ said.
Meanwhile, Kolfage - founder of "We Build the Wall" - covertly took $350,000 for his personal use, the statement said.
Building a wall across the US-Mexico border is perhaps Trump's most memorable signature promise during his 2016 election campaign. He said he would build it, and Mexico would pay for it.
Also read: Immigration official says US-Mexico border crisis not over
He has gained access to defence funds, but is still short of the original estimate of up to $12bn which, in turn, is far shorter than much higher estimates that include construction consultants and others.
The administration's aim was to have 509 miles of it ready by the end of 2020.