CHRIS UHLMANN, PRESENTER: The Independent Commission Against Corruption is cutting a swathe through conservative ranks in New South Wales.

Nine MPs have been tainted by a corruption scandal, with another Liberal exiled to the crossbench today amid more revelations about politicians taking cash from property developers.

It comes just days after two of the party's rising stars quit, admitting they each took a bundle of cash from a banned donor.

And as Adam Harvey reports, the inquiry's edging ever closer to the federal Liberal Party.

ADAM HARVEY, REPORTER: For much of the 20th Century, Newcastle was Steel City, the nation's blue-collar capital. The furnaces at BHP's Newcastle steelworks fired up the national economy.

When the BHP plant closed, there was great opportunity for developers with the right connections.

JOHN HAYES, NEWCASTLE RESIDENTS GROUP: There is serious money to be made in Newcastle, in a changing city, but what many in the community are concerned about is that development at any cost is not necessarily the best way to go.

ADAM HARVEY: Ahead of the 2011 election, the people to know were the NSW Liberals, certain of victory against a tired Labor government, tarnished by corruption and scandal. The Liberals preselected two of its rising stars for the Newcastle region.

TIM OWEN, LIBERAL CANDIDATE FOR NEWCASTLE (Liberal Party advertisement): Having been a senior commander in the Australian Defence Force and with no political agenda, I thought it's time to fight a different battle. Hi, I'm Tim Owen. With my proven leadership, I will take the decisive action our city needs.

SEAN NICHOLLS, STATE POLITICAL EDITOR, SYDNEY MORNING HERALD: Impeccable credentials for particularly a state political candidate and one which the NSW Liberal Party was absolutely overjoyed to have.

ADAM HARVEY: Andrew Cornwell was a successful local vet.

SEAN NICHOLLS: Mr Cornwell was drafted into the party as some very much-needed new blood as a cleanskin.

ADAM HARVEY: At the NSW Independent Commission Against Corruption this week, the Liberal cleanskins admitted taking cash from property developers. Developers have been banned from making political donations in NSW since 2009.

GEOFFREY WATSON, ICAC COUNSEL ASSISTING: Now experience teaches that in any field of human endeavour, wherever there is regulation, there will be those who attempt to subvert it.

ADAM HARVEY: One of the men with the brown bags full of cash was property developer Jeff McCloy. He's now the Mayor of Newcastle. He gave $10,000 to Cornwell in the front seat of McCloy's Bentley and another $10,000 to Owen.

JOHN HAYES: They just had a good, shiny face and nobody knew what was going on in the back room.

JOHN WARHURST, SCHOOL OF POLITICS, ANU: It makes you wonder whether this way of doing things is now so common that newcomers fall into the trap of thinking, "Well everyone does it and I'll do it as well," even though it must be contrary to everything they've stood for in their previous lives.

ADAM HARVEY: Cornwell and Owen have quit politics, forcing by-elections just months ahead of next year's NSW election.

Today, McCloy's told ICAC he gave $1,500 to another Liberal politician from the Newcastle area, Gary Edwards.

JEFF MCCLOY, PROPERTY DEVELOPER AND MAYOR OF NEWCASTLE (male voiceover): "They all came to see me for money. I feel like a walking ATM sometimes."

ADAM HARVEY: Was it your intention to throw Gary Edwards under a bus today?

Edwards denies the allegations, but this afternoon, Premier Mike Baird announced that Edwards had stood aside from the parliamentary Liberal Party.

MIKE BAIRD, NSW PREMIER: I do accept the member's resignation from the parliamentary Liberal Party, but what he deserves is due process at the ICAC.

ADAM HARVEY: It means ICAC has now claimed nine Liberal scalps, including that of Barry O'Farrell, who resigned as Premier after he denied receiving a $3,000 bottle of wine from a lobbyist.

SEAN NICHOLLS: The damage that is being wrought by the evidence on the - not only the NSW Government, but also the NSW Liberal Party and potentially the federal Liberals is absolutely enormous.

JOHN WARHURST: The culture of politics, personal and institutional, has now fallen to a very low level indeed, and what is remarkable I think is that many of the individuals probably don't see themselves as engaging in particularly corrupt behaviour.

ADAM HARVEY: This 2009 letter to all Liberal MPs revealed by ICAC helps explain why so many Liberal politicians ignored the ban on taking cash from developers.

LIBERAL PARTY, NSW DIVISION (male voiceover): "This bill is designed to cause maximum damage to our party and our efforts to fund an effective campaign against Labor at the next election."

ADAM HARVEY: It's co-signed by the party's then finance director, Arthur Sinodinos.

SEAN NICHOLLS: The ban was brought in as one of the state's strongest ever anti-corruption measures. So it's pretty much morally indefensible for a party, either at a state or federal level, to try and circumvent that ban.

ADAM HARVEY: Senator Arthur Sinodinos has stepped aside as Assistant Federal Treasurer while ICAC continues its investigations. He'll appear again in the coming weeks as the commission moves closer to the federal Liberal Party. It'll investigate the Canberra-based Free Enterprise Foundation, which took developer donations and moved them on to the NSW Liberal Party. ICAC alleges that that was effectively laundering dirty cash.

GEOFFREY WATSON: There is evidence that the use of the Free Enterprise Foundation in this fashion was known at high levels in the Liberal Party. It seems that the federal party was willing to allow itself to be used in that way.

ADAM HARVEY: Among those expected to face questions about their knowledge of the Free Enterprise Foundation, the Liberal Party's federal director, Brian Loughnane.

The party will argue that it acted legally.

In Newcastle, the damage has been done.

JOHN HAYES: Why do those blokes take it on and go down the gurgler? I can't explain that. They'll have to explain it, they'll have to live with that for the rest of their lives, but it doesn't do us any good.

JOHN WARHURST: Because ultimately, if the political process and the electoral process is crook, then the community at large is unable to put their trust in those who are seeking to govern them and the whole system becomes rotten.

CHRIS UHLMANN: Adam Harvey reporting.