Suspended NSW Labor boss Kaila Murnain has told an anti-corruption inquiry she was scared after learning of a potentially illegal donation to the party and conceded she should have made different decisions.
Ms Murnain was suspended on Wednesday night within hours of her testimony at an Independent Commission Against Corruption hearing on Wednesday.
Continuing her evidence on Thursday, an emotional and teary Ms Murnain said she was scared for the ALP after learning of the donation from Chinese billionaire Huang Xiangmo - a prohibited donor - during a conversation with upper house MP Ernest Wong in September 2016.
"We'd been through a lot that year, there were multiple court cases ongoing, there were by-elections current, I was scared for the office and the reputation of the party," she told the inquiry in Sydney.
She said she was doing her best to make sure she followed legal advice and "I obviously recognise now that's something I shouldn't have done and I should have made different decisions".
She said Mr Wong was "distressed and agitated" when he told her a person who said they had donated money to the ALP had not and the money had come from Mr Huang.
Ms Murnain urged Mr Wong several times to get the person to come forward, the inquiry heard.
She said she couldn't remember the donation amount but connected it to the money raised at a 2015 Chinese Friends of Labor dinner which is at the centre of the ICAC inquiry.
"I do remember stepping back and realising what all this meant. That a significant donor had made a donation to our state campaign account who was a prohibited donor," Ms Murnain told Wednesday's hearing.
After calling then-Labor senator Sam Dastyari for advice, Ms Murnain went to see the party's lawyer Ian Robertson.
NSW Opposition leader Jodi McKay. Source: AAP
Ms Murnain said she told him: "There's been a massive f**k up."
"At the end of the conversation, Ian told me, 'There is no need to do anything from here, don't record this meeting, don't put it in your diary, forget the conversation happened with Ernest and I won't be billing you for this either'," she said.
"And (he said) 'Don't tell anyone about it'. So I literally didn't tell anyone about it."
Ms Murnain said Mr Robertson didn't take any notes and didn't record their meeting.
Sam Dastyari is due to give evidence on Thursday but ahead of his testimony said he felt for Ms Murnain.
"I've always given Kaila what I thought was the best, frankest and fiercest advice," he told reporters outside the hearing.
The inquiry is examining whether Mr Huang, who is now banned from Australia, was the true source of $100,000 said to be donated by 12 people from the March 2015 Chinese Friends of Labor dinner.
As a property developer, Mr Huang was prohibited by law from making donations to NSW political parties.
Party staffer Kenrick Cheah told the NSW Electoral Commission in 2017 that Mr Huang went to the party's Sydney office a few weeks after the CFL dinner and gave then-general secretary Jamie Clements $100,000, which was later passed on to Mr Cheah.
But when questioned by Mr Clements' lawyer at the inquiry, Mr Cheah admitted he didn't actually see Mr Huang carrying the bag of money.
