The player, Tyson Keats, appeared in 10 matches whilst not holding Effective Registration with the Rugby Football Union.
The case was heard by an RFU Premiership Regulations Panel of Inquiry consisting of Jeremy Summers (chairman), Mark McCafferty and Peter Budge.
Mr Summers said: "This was an extraordinary case and one that it is hoped will never be repeated. The sanction imposed was structured to reflect the seriousness of the matter, which included conduct that was dealt with by the police, but also to import a rugby-based proportionality to the overall position that took into account the wider interests of the game."
London Welsh have 14 days in which to appeal against the decision.
London Welsh's former rugby manager Mike Scott is also the subject of a separate RFU disciplinary hearing relating to Keats' registration.
He has been charged under RFU Rule 5.12 for "conduct prejudicial to the interests of the Union or the Game". Scott's case will be heard at a later date.