Its general secretary is gone but the question remains: how do you fix a party branch synonymous with sleaze and scandal?

'Red hot angry': the fallout from yet another NSW Labor scandal at Icac

One of Labor’s favourite Chinatown eateries was packed as Kaila Murnain readied herself to speak. It was 2014, the year before the fateful Labor fundraiser at the centre of this week’s explosive anti-corruption hearings.

But the scene was largely the same. The Eight Restaurant in Haymarket was at capacity, the room full of wealthy donors cosying up to some of the most powerful Labor figures in the state.

Murnain turned to a small group of Labor supporters before her official speech, and allegedly said: “I’ve been told I need to thank Mr Huang.”

Union official Dominic Ofner was at Murnain’s table that night, and was one of the people that allegedly heard Murnain’s aside about Chinese billionaire Huang Xiangmo.

“The comment was memorable because I received the impression from [Murnain’s] verbal tone and facial expression that she found it unusual she had been asked to thank him in her speech,” Ofner told the Independent Commission Against Corruption in a statement recalling the event.

Murnain didn’t know it then, but five years later that name would lead to her political downfall.

Murnain didn’t know it then, but five years later that name would lead to her political downfall.

Murnain’s suspension as general secretary was the crescendo in yet another week of scandal for NSW Labor. It has found itself at the centre of damaging corruption probe involving an Aldi bag containing $100,000 in cash, an elaborate scheme to mask payments from banned donors, the suicide of a significant witness, and instructions that the party “keep quiet” about possible illegality.

This week Icac has heard allegations that Huang – a property developer and banned donor – hand-delivered $100,000 cash to Labor’s Sussex Street headquarters in April 2015, passing it on to then general secretary, Jamie Clements.

Evidence suggests Huang may have paid the money to secure prime seats next to Labor leaders Bill Shorten and Luke Foley at a fundraising dinner several weeks earlier, but that his contribution was hidden on official records using 20 fake $5,000 donations from 12 straw donors.

Previously one of the most powerful Labor figures in the country, Murnain was suspended this week after Icac heard she had known since 2016 that Labor had likely taken unlawful donations.

Facebook Twitter Pinterest Jodi McKay says NSW Labor is in a ‘terrible state’. Photograph: Joel Carrett/AAP

The newly installed leader of NSW Labor, Jodi McKay, said: “She’s a broken woman. She is 32 years old and her entire career has come grinding to a halt in the worst possible way.”

NSW Labor, McKay said, was in a “terrible state”. “It is up to us to rebuild trust with the people of NSW, that is my job,” she said.

But how do you fix a branch with which sleaze and scandal is basically synonymous?

Former leader Luke Foley resigned in 2018 over allegations he inappropriately touched a female reporter at a boozy Christmas function. Murnain’s predecessor as NSW Labor general secretary, Jamie Clements, quit in 2016 after facing mounting pressure over harassment allegations. There’s been Eddie Obeid, Ian MacDonald and Joe Tripodi.

The former Labor premier Nathan Rees, who famously sought to stare down factional control of the NSW party before being ousted, said the culture inside Labor’s head office was “just wrong” and had been for years.

“Sussex Street has had a whatever it takes attitude for a long time,” he told Guardian Australia. “Ultimately this has led to this situation in which not only a law has allegedly been circumvented, but the party’s policy position in terms of accepting donations has also been breached.

“To describe the feeling of ordinary members as red hot angry would be an understatement, they are absolutely filthy.”

Suggestions on how NSW Labor can fix its many problems are hardly in short supply.

If all the previous structures and conditions remain the same, the culture will not change. Former NSW premier Nathan Rees

The former Labor senator John Faulkner pushed for donation reform unsuccessfully for years at a federal level, and in 2014 gave a speech in which he pleaded with the party to change by loosening factional and trade union control.

“The stench of corruption which has come to characterise the NSW Labor party must be eliminated,” Faulkner said at the time.

Faulkner’s calls mostly went unheeded, while Rees’s own attempts to introduce publicly-funded elections in NSW – a proposal supported this week by Labor and Liberal powerbrokers Stephen Conroy and Michael Kroger – were also frustrated.

As premier, Rees helped overhaul election funding in the state by introducing a ban on developer donations. But, he said, the idea of publicly funded elections had “hit the sand”.

“Neither party has an interest in doing it because we’re locked in a funding arms race, and vested interests like the commercial media don’t want to see public funding because it means less ads on television and in newspapers,” he said.

This week, Guardian Australia has spoken to a number of current and former Labor officials who have described an often toxic culture within the party’s head office. The structure of the ALP in NSW means that the general secretary of the party is the de facto leader of the right faction, while the left is led by its sole assistant secretary.

That often leads to competing priorities – what’s good for the right isn’t necessarily good for the party and vice versa – and means there is often a lack of trust within the building.

Tales about the petty animosities between the two factions at Sussex Street fill the folklore of Labor in NSW. One general secretary would print screeds of documents when he knew his leftwing assistant needed to use it. Another leftwing assistant secretary had to fight for months to get access to a locked stationery cupboard.

“If you’re from the left you basically know the one assistant secretary in Sussex Street and they’re sitting there surrounded by the enemy, you know,” said Meredith Burgmann, the former president of the NSW parliament upper house and a doyen of the Labor left. .

Burgmann said the party’s head office had been unduly focused on raising money and fighting factional wars. A culture of internal promotion, she said, had helped foster that.

“The reality is that for the last few years they’ve been promoting people from inside, which I don’t think has been terribly helpful because if there was a poor culture there it’s just flowed on,” she said.

“I do think Kaila Murnain was trying to clean things up, and I think she was horrified by what she was told [by Ernest Wong] but … she should have known better.”

In other words, Murnain is less a cause than a symptom of a wider problem. Removing her won’t fix the root cause of NSW Labor’s malaise.

“If all the previous structures and conditions remain the same, the culture will not change,” Rees said.

Facebook Twitter Pinterest Kaila Murnain said she quickly called her mentor and then Labor senator, Sam Dastyari, pictured, for advice. Photograph: Dan Himbrechts/AAP

“The problem is in the culture. It’s the process of entry into the machine through young Labor and up the totem pole. If you want to change culture, you have to change the pattern of ascension and it has been abundantly clear for some time that the culture has been less than ideal.”

Any equivocation about Murnain’s future ended shortly after her evidence on Wednesday. Icac had already heard evidence from one Labor official, Kenrick Cheah, that she had seen the cash-filled Aldi bag at Labor’s headquarters in 2015.

Murnain spoke of meeting with a “distressed” state MP, Ernest Wong, a man who played a critical role in organising the March 2015 fundraising dinner. The pair met out the back of state parliament about 6.45pm on 16 September 2016. Wong was sweating. He was anxious.

“He sort of just blurted out that a donor who had said they’d given money to the Labor party had not actually given money to the Labor party,” Murnain said.

She responded: “What the shit?”

“I remember that. I then asked him a question about who, I just said, “Who donated the money?” And he, he said very quickly, ‘Mr Huang’.”

The next series of events were picked apart forensically by Icac in its hearings. Murnain said she quickly called her mentor and then Labor senator, Sam Dastyari, for advice.

From the outside, it appears a strange course of action. Dastyari was in the middle of his own damaging scandal involving Huang’s Yuhu Group, which had paid a legal bill of $5,000 on behalf of the senator.

Phone records tabled at Icac show Murnain meeting up with Robertson about 7.18pm, just half an hour after she says she met with Wong.

He was also recorded suggesting Australia should remain neutral on the issue of the South China Sea dispute, a stance at odds with Labor policy.

This was all taking place just a year after intelligence agencies warned the major political parties that two of Australia’s most generous donors had “strong connections to the Chinese Communist party”, and in the context of an ongoing NSW Electoral Commission investigation into donation irregularities at the March 2015 fundraiser.

Dastyari arrived and picked Murnain up in his car. Murnain says they drove around Sydney together for five to 10 minutes. Dastyari said it was an hour or more.

They both recall Dastyari urging her to go to Labor’s lawyer, Ian Robertson, of Holding Redlich.

Phone records tabled at Icac show Murnain meeting up with Robertson about 7.18pm, just half an hour after she says she met with Wong.

She alleges at the Icac hearing that Robertson told her to keep quiet about what Wong had told her.

“Ian said to me, ‘There is no need to do anything from here. Don’t record this meeting, don’t put it in your diary,’” she said. “‘Forget the conversation happened with Ernest, and I won’t be billing you for this either… and don’t tell anyone about it’.”

Both Murnain and Dastyari were adamant they only met once that night. But Dastyari’s WhatsApp records show him arranging to meet Murnain at 7.41pm, well after she met with Robertson.

Facebook Twitter Pinterest On Friday, Ernest Wong was repeatedly accused of lying when he claimed he had not sold the head table at the fundraising dinner to Huang for $100,000, despite records suggesting otherwise. Photograph: Dean Lewins/AAP

Quickly after Murnain’s evidence concluded on Wednesday, she was dumped. The next day, she broke down on the Icac witness stand as she explained why she had followed the advice and kept quiet.

“We’d been through a lot that year,” she said. “There were multiple court cases ongoing. There were byelections current. I was scared for the office, and the reputation of the party … I obviously recognise now that’s something I shouldn’t have done.”

Many questions remain for Icac when it returns next week. On Friday, Wong was repeatedly accused of lying when he claimed he had not sold the head table at the fundraising dinner to Huang for $100,000, despite records suggesting otherwise.

Icac’s counsel assisting, Scott Robertson, warned Wong to use the weekend to think carefully about his evidence.

“I’d like you to carefully consider the answers that you’ve given to the commission during the course of today, and in particular, whether you have given truthful answers during the course of this morning.

“And early on Monday morning, I’m going to ask you whether you adhere to all of the evidence that you gave to me this morning.”

The Icac has already claimed the scalp of one major Labor powerbroker. It still has five weeks left to run.