Bitcoin backer Charlie Shrem pleaded guilty Thursday of knowingly transmitting money intended to facilitate drug trafficking on the Silk Road online underground market, the U.S. Attorneys Office for the Southern District of New York said.

Shrem, a founder of the Bitcoin Foundation, is said to have been associated with Robert M. Faiella, who allegedly ran a Bitcoin exchange on the Silk Road from about December 2011 to October 2013, and went by the username BTCKing.

Silk Road, which was accessible only through the Tor anonymity service, used the anonymous bitcoin virtual currency to keep the identity of sellers and buyers private. Until its closure in October last year, Silk Road is alleged to have been a thriving market for drugs and other illegal products and services, including fake passports.

Faiella sold Bitcoins to users wanting to buy illegal drugs on the site, without registered his business as a money transmitting business with the U.S. Treasury Department, as required under U.S. federal regulations, according to government charges.

He filled the orders through a company in New York, which had Shrem as its chief executive officer and also its compliance officer, in charge of complying with federal anti-money laundering laws, from about August 2011 until about July 2013, when the company ceased operating. The statement from the U.S. attorneys office did not refer to the companys name Bitinstant.

Both Faiella and Shrem pleaded guilty before District Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York for operating an unlicensed money transmitting business, through which they knowingly transmitted money intended to facilitate criminal activityspecifically, drug trafficking on Silk Road, according to the U.S. attorneys office.

The lawyers for both Shrem and Faiella could not be immediately contacted. There was no record of the guilty pleas in the online records of the court.

Faiella and Shrem will be sentenced by Judge Rakoff next year on Jan 20. Shrem, who pleaded guilty to aiding and abetting Faiella in his unlicensed money transmitting business, carries a maximum sentence of five years in prison, as also Faiella who pleaded guilty to one count of operating an unlicensed money transmitting business.

Shrem quit as vice chairman of the Bitcoin Foundation in January after charges were brought against him by the U.S. attorneys office. The foundation, while accepting his resignation, quoted from the indictment which said that Bitcoin are not inherently illegal and have known legitimate uses.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. More by John Ribeiro

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Bitcoin backer Shrem pleads guilty to operating unlicensed payments