Two men have pleaded guilty in a New York court to enabling the digital currency Bitcoin to be funnelled to the black market website Silk Road.
The case involves the senior executive of a New York City-based Bitcoin company and a Florida Bitcoin exchanger.
Charlie Shrem, 24, of Manhattan, admitted aiding and abetting the operation of an unlicensed money transmitting business, while Robert Faiella, 54, of Florida, pleaded guilty to operating an unlicensed money transfer business.
Sentencing was set for January 20, when each faces as much as five years in prison.
The case grew from the US government’s shutdown of Silk Road. Shrem was chief executive officer of BitInstant, and Faiella operated an unlicensed money transferring business.
They were accused of letting more than 1 million dollars (£613,000) in Bitcoins reach the website. Both admitted during their pleas that they knew narcotics were bought and sold on the website.
US District Judge Jed Rakoff asked Faiella whether he knew from December 2011 through last October that his Bitcoins would be used to buy and sell drugs and that it was illegal.
“Absolutely,” Faiella answered.
Shrem said he knew that much of the business conducted on Silk Road involved the purchase and sale of narcotics.
“I knew what I did here was wrong,” he told Rakoff.
Authorities have said Silk Road’s San Francisco operator generated more than 1 billion dollars (£600 million) in illicit business since 2011 on the website. It used Bitcoin, a tough-to-track digital currency, before being shut down.
Prosecutors said Faiella ran an underground Bitcoin exchange on the Silk Road website, operating under the username “BTCKing.” They said he sold Bitcoins.
The government said Faiella filled his orders through Shrem’s company from August 2011 until July 2013, when the company stopped operating.
Prosecutors said Shrem, who was vice chairman of a foundation dedicated to promoting the Bitcoin currency, failed to file a single suspicious activity report with the US Treasury Department regarding Faiella.
Marc Agnifilo, Shrem’s lawyer, said outside court that his client’s crime was an aberration.
A lawyer for Faiella had no comment.