John Banks says he never called German billionaire Kim Dotcom to thank him for a $50,000 donation to his 2010 Auckland mayoralty campaign.
Police are investigating claims Banks knew about Dotcom's donation and a $15,000 donation from SkyCity after complaints from Labour.
Dotcom claims he discussed the donation with Banks at his Auckland mansion, and later received a phone call thanking him for the money, despite listing it on his 2010 mayoral return as two anonymous donations of $25,000 each.
Dotcom said Banks told him to split his donation into two payments.
Banks has previously said he did not recall whether he made the phone call, but now says he never did. However he did have contact with Dotcom about "other matters".
Donation rules 'pretty simple'
Expert in Local Government law Linda O'Reilly told TV ONE's Close Up the rules around anonymous donations are "pretty simple".
A politician who receives a campaign donation is required to file details to the Returning Officer within 55 days of the election, she said.
The amount must be stated, along with the name and address of the donor.
But if a donation is made anonymously, the recipient must declare the amount and state that it was made anonymously.
"In Mr Banks' case we don't know exactly what happened," O'Reilly said.
"It may be that he was told that there might be going to be a donation. There are a whole raft of possibilities between the cheque being written out and handed to him - so he definitely knew and it couldn't be said to be anonymous - and it being made perhaps at a later date."
The worst case scenario for Banks would be a conviction of knowingly filing a misleading return, with a penalty of up to two years in prison or a fine of up to $10,000, she said.
The "real kicker" would be for Banks to lose his job, O'Reilly said.
Political commentator Bryce Edwards told Close Up that the Local Electoral Act is unclear about how anonymous donations are actually monitored, regulated and enforced.
"What we're seeing is an incredibly murky element of politics," Edwards said.
"We just don't know to what extent this is widespread and I think, increasingly the public are quite concerned."
Key's 'double standards'
Prime Minister John Key is being accused of double standards over his handling of allegations about donations to John Banks' mayoral campaign.
Key has dismissed calls to stand the Act leader down from Cabinet over claims he knew about donations from German billionaire Kim Dotcom and SkyCity, which were listed as anonymous.
Green Party co-leader Metiria Turei said that stance is inconsistent with the one he took in 2008 over a $100,000 donation from expat businessman Owen Glenn towards Winston Peters' legal fees.
Peters claimed he did not know about the donation.
Key at the time said: "It is no longer acceptable or credible for Helen Clark to assert a facade of confidence in her Foreign Affairs Minister and to fail to ask the plain questions of him that she has a duty to the public to ask.
"Helen Clark must stand Mr Peters down as a Minister. That is what I would do if I were Prime Minister. Helen Clark has stood Ministers from Labour down for much less."
Turei said based on Key's statements on the Glenn donation, Banks should be stood down.
"By not taking action, as he said he would, John Key is failing his own standards and selling New Zealanders short," she said.
Labour leader David Shearer said that until Banks was prepared to give an assurance that he did not knowingly conceal the donation, Key had no choice but to stand him down from Cabinet.
But Key said it was now "solely a matter for the police" and he had received an assurance from Banks that he acted within the law.
"He either complied with the law or he didn't. He said he did - I have absolutely no reason to doubt him," Key told TV ONE's Breakfast this morning.
"In all the experiences I have had with him as a minister he has never misled me."
However, Key said he did not ask Banks if he asked Dotcom to split the $50,000 in two. "That's not my job to do a forensic investigation.