Bitcoin Foundation's vice chairman accused of money laundering in Silk Road case

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New developments in the investigation that brought to the closure of drug dealing website Silk Road: executives of two exchanges for the virtual currency Bitcoin have been arrested in the US.

Charlie Shrem, 24, and Robert Faiella, 52, both operators of Bitcoin exchange businesses, have been arrested on the basis of attempting to sell $1million (£603,209) in the digital currency to Silk road users.

Charlie Shrem, who started investing in Bitcoins as a university student, is founder and chief executive of the successful exchange BitInstant.com, which sells the virtual currencies in WalMart and Duane Reade amongst others, as well as being a founding member and vice chairman of Bitcoin Foundation.

He is accused of changing cash into Bitcoins for Faiella, alias BTCKing, who run an underground digital currency exchange on Silk Road. Ultimately, the Bitcoins provided by Mr Shrem through Mr Faiella were used to buy and sell drugs on the black market site, which was shut down last September.

Both Mr Shrem and Mr Faiella have been charged with conspiring to commit money laundering.

The authorities believe that MR Shrem knew that Faiella's digital exchange service was responsible for fuelling Bitcoins in Silk Road's black market. Furthermore, they believe Shrem used 'BTCKing' Faiella to buy drugs from Silk Road.

In case Mr Shrem was aware that the bitcoins were being used for purchases of illegal substances, he would have been selling them in violation of the Bank Secrecy Act, which requires financial institutions to alert authorities to any suspicious activity that may be related to money laundering.

The website Silk Road provided its users with an anonymous platform where to buy and sell drugs from each others. The digital currency was a critical element in the functioning of the site, which was recently shut down and its alleged owner arrested.

Emily Spaven, managing editor of news site Coindesk, told the BBC: "Since the closure of Silk Road and arrest of alleged owner Ross Ulbricht, we always knew more arrests would follow."

A spokesman for Bitcoin Foundation, an organization set up to promote Bitcoin as an alternative currency, said: "We are surprised and shocked by the news today. As a foundation, we take these allegations seriously and do not condone illegal activity."

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