Mr Hain, one of the best known figures in the UK Labour Party, resigned from his job straight after the Electoral Commission referred to the Metropolitan Police an investigation on his allegedly undeclared donations.
Peter Hain had been Secretary of State for Wales since 2002. As the head of the Wales Office within the UK cabinet, he was responsible for ensuring that Welsh interests were taken into account by the British government, as well as representing the UK government within Wales.
In early 2007, Mr Hain launched a campaign to become deputy leader of the UK Labour Party. He finished fifth out of six candidates.
In November 2007 the Electoral Commission announced an investigation into Mr Hain’s allegedly disguised campaign donations. Mr Hain admitted he failed to register a £5,000 donation due to an "administrative error", but according to reports from the BBC and The Guardian newspaper no donations to Mr Hain's campaign were declared at all after the month of May.
Under the Political Parties, Elections and Referendums Act 2000, political donations need to be reported within 60 days of a donation being offered.
It also emerged that some of the donations to Mr Hain's campaign were channelled through an unknown think tank which had been set up recently by a member of his campaign team and employed no staff nor had published any research.
In January 2008 Mr Hain admitted that he failed to declare more than £103,000 in donations but said that it was "absurd" to suggest he had tried to hide anything and announced that he would get on with his cabinet jobs.
A political row erupted as Plaid Cymru said Mr Hain's position was "untenable" and the Conservatives accused him of "breathtaking incompetence", while UK Prime Minister Gordon Brown expressed his "full confidence" in Mr Hain.
As the Electoral Commission announced that they were referring the donations investigation to the Metropolitan Police, Mr Hain tendered his resignation from the UK Cabinet as Secretary of State for Wales and Pensions Secretary.
On his resignation, Mr Hain regretted the late donations but insisted it had been an "innocent" mistake and blamed poor administration by his campaign team for the failure to declare the donations, as well as blaming his large government responsibilities for his oversight.
Paul Murphy, new Secretary of State for Wales
Paul Murphy, MP for Torfaen in South Wales, has taken over as Welsh Secretary from Peter Hain, returning to the position he held for three years right after the Welsh Assembly was created in 1999.
First Minister of Wales Rhodri Morgan welcomed Mr Murphy back to the post and said: "I expect this to be a very fruitful period in Westminster/Wales relations". Deputy First Minister Ieuan Wyn Jones also welcomed Mr Murphy's appointment.