The Australian Commission for Law Enforcement Integrity is investigating the way the Federal Police dealt with The Australian newspaper when reporter Cameron Stewart approached them with leaked information about the Operation Neath anti-terrorism raids last year.

An ACLEI source this morning told Crikey that the investigation would include whether any release of information to reporter Stewart from the Federal Police had been “unauthorised”.

Yesterday The Australian and the Victorian Office of Police Integrity settled their litigation before the Federal Court, with both sides conceding ground. The OPI agreed to omit “certain disputed issues and tentative findings” from its report into the leaks — which I understand to be material critical of The Australian and Stewart.

Meanwhile, The Australian abandoned its effort to have the whole investigation declared invalid and evidence permanently suppressed. The result is that the evidence remains intact, and the Victorian police officer suspected of being Stewart’s source will almost certainly soon be charged.

OPI Director Michael Strong yesterday said he planned to brief prosecuting authorities “very soon”. He hoped to release his report on the investigation next month, depending on the timing of the court case against those charged with terrorism offences as a result of Operation Neath.

Meanwhile, the ACLEI is investigating the competing stories about what happened when Stewart took the information he allegedly had from his Victorian Police source and cut a deal with the Federal Police in which he was given detailed briefings in return for delaying publication of the story.

Stewart’s resulting scoop about the anti-terrorism operation was published last August, on the very morning that raids were conducted and arrests made. The Victorian Police then criticised the publication, saying because some copies of the paper were available in Melbourne before the raids, officers’ lives had been put at risk.

There are several issues in dispute here, and as previously reported in Crikey the whole mess is part of the poisonous state of relations between the Federal and Victorian Police, and the OPI and its federal counterpart, the ACLEI.

First, what was the precise nature of the embargo deal Stewart cut with the Feds? And was it adequately tied down and documented? Was it “authorised”, or was it effectively a further leak?

Second, to what extent were the Victorian Police a party to that deal, and to what extent were they gazumped by the feds?

Meanwhile, the imbroglio will soon shift to the criminal courts when the Victorian Police officer suspected of being Stewart’s source is charged. Several scenarios are likely to play out.

First, Stewart is likely to be subpoenaed as a witness, and will presumably refuse to identify his source, putting him at risk of contempt of court. But I understand that the case against the alleged source will not rest on Stewart’s evidence alone. I believe there is also a trail of emails between Stewart and the suspect. There is also the transcript of Stewart’s interview with the OPI, previously described by the OPI as the “key evidence”.

All of which raises the question of what reporters need to do to protect their sources.

The identity of the Victorian Police officer suspected of being Stewart’s source is a poorly kept secret. The name is known to most journalists and others who have taken an interest in the matter. He is not exactly an incognito person. He has a public presence on the internet, and he has been quoted in a Stewart news story long before the Operation Neath scoop.

Indeed, it is a measure of journalists’ sensitivity around the issue of sources that he has not yet been named — and I do not intend to do so now. And, of course, there is no confirmation that he was the source — only that he is suspected.

But what will happen if, to preview just one possible sequence of events, the source says in his own defence that he gave Stewart only negligible information, and that the bulk of what Stewart published came from the Federal Police themselves?

The whole imbroglio is also caught up in the internal politics of News Limited and The Australian, with editor Paul Whittaker having considerable skin in the game. Well-regarded reporter Hedley Thomas also has a stake, because his series of stories critical of the OPI has been described by Strong as a campaign motivated by the newspaper’s legal battle.

The OPI and The Australian were putting the best face on yesterday’s settlement.

Strong told Crikey yesterday afternoon: “I needed a circuit breaker, and to get it I had to make concessions.” He said there was a limited period in which charges could be laid, and that the deadline had been fast approaching, adding to the urgency of being free to brief prosecutors.

But Strong stressed that the evidence gathered in the investigation remained “intact”, and said he made no concessions on the issue of whether the OPI had been acting beyond its powers in investigation Stewart’s dealings with the alleged source.

Meanwhile, Whittaker said the paper had gone to court “only as a last resort”, and that he was happy with the settlement:

“We had serious concerns with the way the investigation into the alleged leaking of details of Operation Neath was being conducted by the Australian Commission for Law Enforcement Integrity and the Office of Police Integrity. We commenced the action in the Federal Court because we believed the police misconduct agencies were acting beyond the scope of their powers and that the newspaper wasn’t being given a fair hearing in relation to a number of issues, only one of which involved the agencies’ dealings with Cameron Stewart.”

One way or another, the uncomfortable story of the reporter, his sources, his newspaper and the two police forces is likely to be causing distress and discomfort for some time.