Fairfax Media has uncovered evidence of Helen Liu's migration fraud despite the Immigration Department aborting its own probe into the matter without conducting a thorough investigation or interviewing key witnesses. The federal opposition is now demanding to know why the Department of Immigration and Citizenship failed to conduct a proper investigation after its immigration spokesman, Scott Morrison, referred the case of ''a possible act of migration fraud'' involving Ms Liu and others to the department's secretary last year.

Fairfax Media has spoken to key players involved in the sham marriages that occurred more than 20 years ago - none of whom was contacted by Immigration - and obtained documentary evidence to show that Ms Liu obtained permanent residency after she and her then Chinese boyfriend and business partner, Harry Xu, married two young Australians in a bogus arrangement that fooled immigration officials.

The revelation comes at an awkward time for Labor, which has made immigration an even bigger election issue through Prime Minister Julia Gillard's comments on the 457 visa system for foreign workers.

Ms Liu and her companies have donated thousands of dollars to the ALP's NSW branch and paid for two trips to China for Mr Fitzgibbon in 2002 and 2005, which the then opposition MP failed to declare. Ms Liu is also close to Foreign Affairs Minister Bob Carr and his wife, Helena.

It can be revealed that the two Australians who married the Chinese pair, David Shultz and Grace Clague, did so on the basis that they believed they would be at risk of persecution if they returned home.

Mr Shultz and Ms Clague, who were about 20 and 18 at the time, had two of their three children together during the period they were supposedly married to the Chinese pair, who were several years older. The supposed couples never consummated their marriages or lived under the same roof.

Contrary to Ms Clague's statement that she was told the Chinese couple were at risk of persecution, Ms Liu has regularly returned to China to do business with top politicians, received millions of dollars in loans from the Bank of China and swore in a Federal Court affidavit in 1997 that her father was a ''ranking official'' in the Chinese government and many other of her relatives occupied ''high-level positions in the Chinese government''.

Ms Clague, who is the daughter of Aboriginal activist Joyce Clague and Colin Clague, who was an ALP candidate in the 2011 NSW election, said she and Mr Shultz were ''young, naive and stupid'' when they agreed to marry the Chinese couple.

Ms Clague said she and Mr Shultz had become friends with the couple after being introduced through a man who worked for an immigration consultant. ''They seemed honest, caring people and I believed their lives were at stake,'' Ms Clague said.

''I saw their love, I wanted to be part of it and share it … the final decision was made when I was told their lives were at stake.''

More than two years after the marriages, believed to have taken place in 1989 or 1990, Ms Liu received permanent residency after signing two statutory

declarations stating she was in a long-term and genuine spousal relationship with an Australian.

The marriages and residency applications were overseen by migration agents later de-registered for improper conduct.

Making false declarations to the Commonwealth and entering sham marriages for migration purposes are criminal offences that can result in a custodial sentence or substantial fines.

Despite Mr Morrison's referring the matter to Immigration Department secretary Martin Bowles, immigration officials closed the file last year, claiming there was ''insufficient evidence'' to proceed.

Documents released under freedom-of-information laws show senior Immigration Department officials regarded the case as politically ''highly sensitive'' because of Ms Liu's association with Mr Fitzgibbon, a former defence minister who was last year chief government whip.

Mr Morrison said he would again write to Mr Bowles to seek an explanation on his department's failure properly to investigate the fraud allegations.

''The investigation of possible migration fraud should not be subject to any sort of political censorship,'' he said on Friday.

In response to questions, an immigration spokeswoman said the department took ''allegations of fraud seriously''.

Ms Liu and Mr Xu used their permanent residency to obtain Australian citizenship and build a property empire worth $40 million by the mid-1990s, when their personal and business relationship soured.

Ms Liu also cultivated several useful contacts in the NSW ALP, most notably Mr Fitzgibbon, his father, former federal MP Eric Fitzgibbon, and Senator Carr, who was then premier.

She rose to prominence in March 2009 after revelations of her substantial financial support of the ALP and the Fitzgibbon family.

Ms Liu helped fund Joel Fitzgibbon's first federal election campaign in 1996.

The Immigration Department has refused on privacy grounds to release any documents under freedom of information that record its handling of Mr Morrison's request for the weddings and residency applications to be investigated.

But in other documents released in response to a separate FOI request, the department has revealed that senior immigration officers described the Liu inquiry as "highly sensitive" in the context of "media attention in regard to her relationship with former defence minister Mr Joel Fitzgibbon and his father Mr Eric Fitzgibbon".

The office of former immigration minister Chris Bowen, a close ally of Mr Fitzgibbon, was briefed on the processing of FOI applications relating to Mr Morrison's request for an investigation.

Ms Liu is engaged in litigation against Fairfax Media with the aim of forcing the disclosure of confidential sources that provided information about her business dealings and association with Joel Fitzgibbon.