Bitcoin exchanger Robert Faiella, and Charles Shrem former CEO of BitInstant and one of the founding members of Bitcoin foundation, pled guilty to federal charges in a Federal District Court in Manhattan earlier this week. Faiella who used the name BTCking for these online activities, was accused of supplying $1 million in digital currency to people buying drugs on Silk Road. Faiella along with Shrem were arrested last year and charged with conspiracy to commit money laundering and operating an unlicensed money transmitting business. Shrem, was arrested on Sunday at New York’s JFK airport, while Faiella was arrested today in Florida.

Shrem told the court on Thursday, according to The New York Times, “I knew that what I was doing was wrong. I am pleading guilty because I am guilty,”  In a prepared statement, the prominent Bitcoin advocate said that from January 2012 to October 2012 he helped Faiella exchange dollars into bitcoins through BitInstant. “He said Mr. Faiella would in turn sell Bitcoin to people who wanted to buy drugs on Silk Road,” the NYT reported.

In violation of the federal code, Faiella was involved in the transportation and transmission of funds intended for trafficking narcotics on the Silk Road website. Shrem was accused of involvement with the money transmitting business. Reportedly, Faiella received multiple orders for Bitcoins- the only form of payment accepted on Silk Road, from users of the site which allowed them to buy and sell drugs and anonymously exchange cash for Bitcoins. Failella obtained the Bitcoins through BitInstant and sold them at a profit to Silk Road users.

Shrem meanwhile, sentenced to two years in prison last month was charged with assisting and failing to report suspicious transactions through the Bitcoin exchange service operated by Shrem. Shrem, who was also the Company’s Compliance Officer, in charge of ensuring its compliance with anti- money laundering laws (AML) knowingly helped Faiella conduct his operation through the Company in light of the substantial income the company received from his business. He reportedly gave Faiella a discount on high- volume trades of Bitcoins that he purchased for Silk Road users and helped him circumvent the company’s AML restrictions. Federal prosecutors in New York said Shrem personally bought drugs on Silk Road and was fully aware that it was a website that let users buy illegal drugs anonymously, among other contraband.

According to the complaint filed in the Southern District of New York the Silk Road website hosted an online black- market bazaar, allowing vendors and buyers to conduct illicit transactions online. The charges come three months after the underground drug emporium was shuttered by law enforcement and its alleged founder, Ross Ulbricht, arrested. Silk Road was only accessible through the Tor network, a special network on the internet designed to conceal the ture IP addresses of the computers on the network, and, thereby the identities of the users.

The illegal nature of the website was apparently very evident to anyone visiting it. A vast variety of illegal drugs were openly advertised and prominently visible on the website.

U.S. Attorney Preet Bharara said in a release: “Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,”

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