Bitcoin trader admits facilitating Silk Road drug sales

Bitcoin traders that provided currency to Silk Road users have admitted to running an unlicensed money transfer business during a federal court hearing into the matter in New York.

Related: Bitcoin exchange bosses charged over shady Silk Road dealings

Charlie Shrem of BitInstant.com and Robert Faiella pleaded guilty as part of a settlement with US prosecutors to charges that they sold over $1 million [£603,000] worth of bitcoins to users of the online marketplace Silk Road.

The case saw Shrem accused of allowing Faiella to use BitInstant to purchase large quantities of bitcoins that were then sold on to Silk Road users with the sole purpose of buying drugs anonymously.

Shrem’s actions broke the Bank Secrecy Act thanks to the authorities being able to prove Shrem was aware that the funds would eventually be used to purchase narcotics.

Under the Bank Secrecy Act, financial institutions in the US are required to alert authorities when suspicious activity is spotted, which points to the presence of money laundering.

Silk Road reached the end of its journey in October 2013 when the FBI apprehended operator Ross William Ulbricht at a public library in San Francisco and confiscated millions of dollars worth of bitcoins after the authorities claimed he generated some $1.2 billion [£730 million] in sales from the site.

Ulbricht is still contesting the seizure of around $85 million [£52 million] worth of bitcoins that the US government confiscated as he claims they aren’t the assets of Silk Road and are instead his personal property.

Related: Silk Road and owner Ulbricht forfeit combined $158m Bitcoin fortune

The other 29,000 bitcoins that aren’t part of the contested amount have been auctioned off by the US Marshals Service in a deal that has already raised $18.7 million [£11.4 million]. Ulbricht, meanwhile, is facing a number of separate charges and the trial date has been set for November.