Ben Roberts-Smith's friend and a former elite soldier told a court he is under investigation for the alleged war crime of murder in Afghanistan.
The former SAS soldier codenamed Person 35 denies the claim he executed an unarmed Afghan man during a mission to the village of Darwan, in the Uruzgan province in September 2012.
He says he lawfully engaged an armed Taliban insurgent but was aware the shooting was being investigated by the Office of the Special Investigator.
The allegation, which is not pressed in the defamation trial, is said to have occurred during the same raid where Mr Roberts-Smith is accused of kicking an unarmed Afghan off a cliff.
A former comrade of Mr Roberts-Smith earlier testified that he watched the decorated soldier kick a handcuffed local man named Ali Jan off a "steep slope", and he was later shot in a river creek bed below.
The war veteran has denied this occurred.
Person 35 confirmed Network Seven boss Kerry Stokes was paying his legal fees, as he did not feel comfortable using free counsel from the Australian Defence Force.
On Friday the newspapers' barrister, Nicholas Owens SC, asked Person 35 if he sought privately funded legal representation due to concerns of murder allegations directed at him.
"That's incorrect," he replied.
Person 35 said the news article airing the allegation was based on an Afghan journalist's lies.
Person 35 is appearing on behalf of Mr Roberts-Smith who is suing The Age, The Sydney Morning Herald and The Canberra Times for defamation.
The Victoria Cross recipient denies all reported claims he committed war crimes in Afghanistan including murder, and acts of bullying and domestic violence, while the mastheads are defending them as true.
The witness was also questioned further on key evidence he gave about an Afghan partner force soldier that he admitted was a mistake on Thursday.
Originally he testified that an Afghan soldier dubbed Person 12 was removed from his troop in July 2012, after a bullet he shot at a dog ricocheted and hit an Australian soldier.
Mr Roberts-Smith is accused of ordering Person 12 through an interpreter to shoot an Afghan prisoner on an October mission to Khaz Oruzgan.
If Person 12 was removed from all deployments in July, he could not have been on the mission where the alleged murder occurred.
On Thursday Mr Owens showed Person 35 a number of classified documents that outlined Person 12 in fact took control of Australia's army partner force in September 2012.
Following this Person 35 said he must have "remembered incorrectly" and agreed Person 12 "did not shoot a dog".
On Friday he denied colluding with other witnesses who also wrote in their outline of evidence that Person 12 was removed from his squad after shooting at a dog.
The other soldiers - dubbed Person 32, Person 39 and Person 27 - were all Person 35's friends he spoke with regularly but denied discussing the incident with them.
He also disputed the claim that he and Mr Roberts-Smith concocted a story to place Person 12 far away from the scene of the crime.
The Federal Court trial before Justice Anthony Besanko continues on Monday.
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