A tax expert says it is likely to be difficult to prosecute Eddie Obeid over tax evasion despite revelations the former Labor powerbroker and his family put millions of dollars through trusts to avoid paying tax.

The Independent Commission Against Corruption (ICAC) has heard the Obeid family filtered millions through a system of trusts and businesses designed to minimise tax.

The money was used for a wide a range of expenses, from everyday household bills to purchasing million-dollar houses in Sydney.

Richard Krever, a professor of taxation at Monash University, says the trust system is "standard practice for tax minimisation".

"Al Capone went to prison because he evaded taxes. The tax person found he had all these assets and hadn't declared it," he told Four Corners.

"In this case, nobody's evaded taxes. They've simply used the rules that Australia allows high income persons to use to avoid taxes. They played the rules properly.

"The tax commissioner might find that some of the loans, some of the documentation, may have had the wrong date or might be some technical problem and there might be some real small technical issue, but... there's no Al Capone here because no law has been broken."

Professor Krever says Australia is one of the few countries to allow trusts to be used in this way and that consecutive federal governments have failed to tackle the issue.

"There'll be Cook Islands, Cayman, there'll be small micro countries that still allow this, but almost all developed countries have rules," he said.

"It's probably a unique phenomenon in Australia because of the unique political culture and the unique social culture.

"The same reason Australia, for example, has no wealth transfer tax. It's part of our lottery mentality that we can't tax rich people because some day I might be rich."

Conspiracy claims

Mr Obeid and his sons, along with former NSW mining minister Ian Macdonald, are facing allegations before the ICAC of a multi-million-dollar criminal conspiracy over a state-issued coal exploration licence.

The licence was issued over the Mount Penny area in the Bylong Valley, four hours north-west of Sydney, that included three farms owned by the Obeid family and their friends.

The coal exploration licence was ultimately awarded to the Cascade Coal company and the Obeids negotiated to secure a share of the venture.

Senior Labor figures have spoken out bluntly about the investigation, saying the scandal is doing immense damage to the party.

They have also blamed former party officials for allowing Mr Obeid to wield enormous influence in past New South Wales governments.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 58 seconds 5 m Senior ALP figures speak out against Eddie Obeid ( Mark Colvin ) Download 2.7 MB

"It is breathtaking the wreckage he has done," Foreign Minister Bob Carr told Four Corners.

Senior federal Labor senator from NSW John Faulkner told Four Corners it is likely the Obeid scandal will have an impact on the coming federal election in the state, where the party is battling to hold onto marginal seats.

"Labor's standing in the state of New South Wales has been very, very significantly damaged by the revelations at ICAC and it would be very surprising if that didn't have an impact federally," Senator Faulkner said.

In a blunt assessment, he added Mr Obeid was allowed to operate behind the scenes where his power in the NSW party went unchecked.

"I've never met him, never spoken to him and I've never heard him make a public speech, but regardless of all that, he ran the New South Wales Labor Party and ran Labor governments in New South Wales," he said.