The former Cabinet Minister Peter Hain was cleared of wrongdoing yesterday after an 11-month investigation into campaign donations was dropped because prosecutors decided that the Electoral Commission had wrongly interpreted the law.

In a week in which Westminster has been shaken by the arrest of Damian Green, the Crown Prosecution Service said that it would not press charges against Mr Hain for failing to declare more than £100,000 in donations to his deputy leadership campaign within 30 days last year. The CPS said that it did not think that Mr Hain was legally responsible for ensuring that the declarations were made on time. The police pursued the case for almost a year at the request of the Electoral Commission, and interviewed Mr Hain during the summer.

The CPS said that there was no doubt that the donations were not reported within the 30 days stipulated under legislation passed in 2000, but in a significant blow to the Electoral Commission, the CPS questioned the watchdog’s interpretation of the law and said that nobody involved in Mr Hain’s campaign could be prosecuted. Stephen O’Doherty, from the CPS special crime division, said that Mr Hain’s campaign was run by Hain4Labour, made up of Labour Party members and with its own bank account into which cheques were paid.

“Mr Hain was not a signatory to that account and did not direct where funds should be spent,” he said. “In light of this evidence, I have concluded that Mr Hain was not the ‘regulated donee’ and nor was he the person responsible for dealing with donations to the association under the terms of the [2000 legislation].” The commission has consistently said that it regards candidates in any election as the “regulated donee”.

Mr Hain said that he was pleased by the decision. “I chose to leave government to clear my name and I am pleased I have now done so. I said all along that reporting some of the donations to my 2007 Labour Party deputy leader campaign late was an honest mistake. Now everyone knows that it was.”

He added: “I only left government to clear this up and would like to return, but that is a matter for the Prime Minister.”

The Electoral Commission said in a statement: “The law requires that political parties and politicians report donations in full and on time. This is important to ensure public confidence in the democratic process. The Electoral Commission’s role is to make sure the rules are followed.”

It added: “The Electoral Commission wants to ensure that there is certainty about where responsibility for reporting donations lies in such circumstances.”

Mr Hain became the first member of Gordon Brown’s Cabinet to resign, when the Metropolitan Police announced in January that it was investigating 17 donations to Hain4Labour, amounting to £103,157.

Mr Hain still faces further questions from the Parliamentary Commissioner for Standards, who postponed his own inquiry pending the police investigation.

In addition to the investigation into Mr Green, Scotland Yard is also still examining the conduct of David Abrahams, the businessman at the centre of a row last year when it was discovered that he had given about £600,000 to the Labour Party through anonymous donors.

The CPS said that the inquiry was continuing although Mr Abrahams’s lawyers told the BBC this week that police had said he had been exonerated.

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