Fine Gael decided not to report a donation of $50,000 (£33,000) to the Moriarty tribunal because it would have been politically disastrous, the party's general secretary last night.
Mr Tom Curran said the party would make contact with tribunal lawyers this morning - three years after questions were raised about the donation. He said it had been feared that if the donation was revealed, a connection would have been made between Fine Gael and the granting of a mobile telephone licence to Esat Digifone.
Mr Curran later told reporters he wished to withdraw the words "politically disastrous".
The affair is damaging to Fine Gael and is particularly embarrassing considering the pledge by new leader Mr Michael Noonan to ban corporate donations.
The money remains in Fine Gael's bank account because efforts to return it have been refused, according to the party.
Fine Gael said it initially believed the money was a personal donation made in 1997 by a former party trustee, the late Mr David Austen.
But it said that Telenor, a Norwegian telecommunications company, informed the party in February 1998 that it had made the donation, through Mr Austen, on behalf of Esat Digifone. Telenor had a 40 per cent stake in Esat Digifone, which was awarded a mobile telephone licence in 1995.
However Mr Denis O'Brien, chairman of Esat Digifone at the time, explained in a statement last night he had put Mr Austen, who had requested a donation for Fine Gael, in contact with Telenor which had just entered the Irish market and "wished to develop political contact independently of Esat".
Mr Dag Vangsnes, executive vice president of communications for Telenor Mobile, said yesterday it was always their understanding the money was paid on behalf of Esat Digifone. "Why the hell would they [Esat] reimburse us if we paid this out of our own pocket?"
Mr Curran said that Fine Gael, once it became aware the money had been paid by Telenor, tried to return it in March 1998. However that cheque was not cashed and Fine Gael said it was told by Telenor it had sent the cheque to Esat Digital, which subsequently returned it to Fine Gael.
Mr Curran said Esat told Fine Gael it was not appropriate to take the money back as the original donation might be construed as wrongdoing on its part. He said Fine Gael is now to send a bank draft to Telenor.
Mr Michael Lowry, who was minister for transport, energy and communications when the mobile licence was awarded, said he never on any occasion requested funds from Esat, Telenor or any person connected with either company.
Former party leader Mr John Bruton said yesterday he did not wish to comment on the payment to Fine Gael or the reason why it was returned. "You had better address your queries to Fine Gael."