The Independent Commission Against Corruption, which set out to investigate controversial water infrastructure company Australian Water Holdings in 2014, made no adverse findings against Liberal party members in its report released on Thursday.
But it found then-Labor MPs Eddie Obeid, Joe Tripodi and Tony Kelly engaged in serious corrupt conduct in relation to their actions concerning a lucrative public-private partnership proposal by AWH between 2007 and 2010.
Mr Kelly's former chief of staff Gilbert (Laurie) Brown also engaged in serious corrupt conduct for his involvement in "preparing a cabinet minute" from a 2010 standing committee on the budget, the ICAC report said.
The corruption watchdog recommended that consideration is given to "obtaining the advice of the Director of Public Prosecution with respect to the prosecution" of the three MPs and staffer.
The Independent Commission into Corruption (ICAC) report into Dealings Between Australian Water Holdings and Sydney Water Corporation (AAP) Source: AAP
Changes to a cabinet minute regarding the PPP proposal between AWH and the government is what brought Mr Kelly, Tripodi and Brown down.
Mr Kelly admitted during the inquiry to instructing Mr Brown to rewrite a cabinet minute to favour AWH.
Advice prepared by an expert consultant submitted to Mr Kelly's office all but scotched the proposal and urged the government not to enter direct negotiations with AWH.
But the minute submitted to the budget committee with Mr Kelly's signature reversed that recommendation.
The ICAC found Mr Brown's involvement in the cabinet minute intentionally and improperly favoured Obeid Sr by enabling AWH to proceed to negotiation with the NSW Government over the partnership that could have delivered millions to the company - for which Obeid's son worked and in which his family had shares.
Additionally, two findings of corrupt conduct were made against Obeid, who is already in jail for misconduct in public office relating to a lucrative Circular Quay lease.
Senator Arthur Sinodinos has been cleared of wrongdoing in an ICAC report. (AAP) Source: AAP
The ICAC found Obeid misused his position as an MP to promote AWH's interests in order to benefit his family on two occasions.
"...The conduct involved an attempted perversion of the Cabinet decision-making process, involved a substantial breach of public trust by putting the interests of an individual before the public interest, and could constitute a serious criminal offence," the report says.
The ICAC made no corrupt findings against federal senator Arthur Sinodinos, who was the deputy chairman of AWH between 2009 and 2010.
The Liberal senator stepped down from the front bench in March 2014 when he was drawn into the inquiry, but was reinstated 18 months later.
Senator Sinodinos responded to the report on Thursday, noting there were no "adverse findings or commentary" against him.
"This brings to an end a long and comprehensive process," he said in a statement.
Premier Barry O'Farrell was also forced to step down, dramatically resigning in April, 2014 after admitting he misled ICAC over a $3000 bottle of Grange Hermitage.
NSW Premier Gladys Berejiklian used Thursday's findings as an opportunity to attack the state opposition.
"This is yet another example of the way the former Labor government held the people of NSW in contempt and ran the state to line its own pockets," she said in a statement.
