Prosecutors were confident a crime was committed in relation to media leaks about union office raids, and believed it would be in the public interest to pursue charges against somebody involved.
But they decided there were no reasonable prospects of conviction - due in part to a lack of evidence - and decided not to prosecute, federal agencies say.
"Our view was that if we had sufficient evidence that it would be in the public interest to prosecute," Commonwealth Solicitor Andrea Pavleka told a Senate estimates hearing in Canberra on Tuesday.
Australian Federal Police believe evidence may have been destroyed in relation to the media leaks, and the committee has heard two federal ministers did not provide witness statements.
The October 2017 raids on Australian Workers' Union offices shot to prominence when staff from the two ministers' offices tipped off the media.
Camera crews and journalists beat the police to the Melbourne and Sydney sites.
The raids were launched in connection with decades-old donations made when Opposition Leader Bill Shorten was the AWU national secretary.
The investigation by the Registered Organisations Commission continues.
The federal government has consistently denied the raids were politically motivated.
Prime Minister Scott Morrison has defended the two ministers caught up in the controversy, claiming they cooperated with police.
On Monday, the Senate committee heard ministers Michaelia Cash and Michael Keenan twice refused to provide witness statements to police in relation to the media leaks.
AFP deputy commissioner Leanne Close said police wanted the opportunity to speak to both ministers and obtain a witness statement.
Instead, the ministers sent the AFP letters to explain their involvement.
Mr Morrison contradicted this version of events, saying police wrote to his ministers and asked them to respond, and they did.
"People should cooperate with police investigations and my ministers have," Mr Morrison told 3AW radio.
"They provided a response and the police have accepted that response and haven't sought, I'm advised, any further statement."
The AFP provided Commonwealth prosecutors with a brief of evidence against one person in order to lay charges.
