An adviser close to sidelined NSW police minister Mike Gallacher "ratted" to the corruption watchdog to regain credibility so he could run for an upper house seat, an inquiry has heard.
Liberal party aide John Macgowan, who worked closely with Mr Gallacher since at least 2008, told the Independent Commission Against Corruption (ICAC) last Wednesday that MP Garry Edwards admitted to him that he received an envelope containing cash from Newcastle property developer Jeff McCloy.
But Mr Edwards told the ICAC last week he received the envelope but never looked inside it, and passed it to a staffer, who has since died.
The member for Swansea moved to the crossbenches after Mr McCloy told the inquiry he had given him about $1500.
Mr Macgowan's evidence was strongly disputed by Mr Edwards' senior electorate officer, Nicholas Jones, during a brief stint in the witness box on Monday.
"It was all in relation to Mr Macgowan's bid to be preselected as a candidate for the (NSW) upper house, representing the Liberal party," he said.
"I believe that his association and employment with former police minister Mike Gallacher would obviously work very strongly against him. I believe he needs an avenue to clear his name."
Commissioner Megan Latham asked Mr Jones how Mr Macgowan would benefit from informing the ICAC.
"So he becomes a rat does he? He rats out people in the Liberal party by coming down here and making a statement and that makes him a more attractive candidate for the upper house?" she asked.
Mr Jones replied: "Because, I believe, he needed to rebuild his credibility."
The allegations relate to a conversation in Mr Edwards' office in mid-August when Mr Macgowan was discussing his preselection hopes.
The men were chatting about Mr Gallacher and disgraced MPs Tim Owen and Andrew Cornwall, three of the 11 Liberals affected by the ICAC's investigation.
Mr Jones contradicted Mr Macgowan's claim he told Mr Edwards to report the envelope to the corruption watchdog during the informal meeting.
"That never happened," Mr Jones said.
The latest round of hearings at the ICAC is probing allegations that the Free Enterprise Foundation (FEF) was used to funnel banned donations to the NSW Liberal party for the 2011 state election.
It's also looking at whether MPs, including former cabinet ministers Christopher Hartcher and Mr Gallacher "solicited and received donations from prohibited donors".
Property developers have been barred from making political donations in NSW since 2009.
Former NSW premier Barry O'Farrell and Senator Arthur Sinodinos have been recalled to give further evidence.
Mr O'Farrell is due back on Tuesday, while Senator Sinodinos has been listed to appear on Friday, the final day of the hearings.
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