Former tabloid editor Andy Coulson "rubber-stamped" a payment to a royal source for a story, despite being warned by a colleague that being caught could end up with both parties in court, he told the phone-hacking trial.
The ex-No 10 spin doctor said he "failed to address" his own suspicions about the reporter, who was asking for the cash to pay the source.
Coulson also repeatedly denied allegations that he was aware of phone-hacking techniques being used by some News of the World employees, and rejected a claim that he had bullied co-defendant and former royal editor Clive Goodman, he told the Old Bailey.
The payment, disclosed in an email exchange between Goodman and Coulson in 2003, related to a "green book" of contacts for royal staff.
In the email, Goodman said he wanted to obtain the book for the "standard fee" of £1,000 from a royal policeman but the money should be paid in cash – something he needed Coulson to sign for.
The court heard Goodman wrote that getting caught making the payment meant the police officer "could end up on criminal charges, as could we".
Coulson, who said earlier that Goodman was prone to exaggeration and creating "unnecessary drama", said he signed off the payment.
He said: "I don't remember the email, but I have read them and thought a lot about them…
"I didn't believe Clive was paying policemen, I still don't believe it.
"I think what I did was failed to address it properly with him. But I didn't [address it], I rubber-stamped it."
Coulson denies two counts of conspiring with Goodman, 56, of Surrey, and others to commit misconduct in a public office. Coulson, 46, of Charing, Kent, is also charged with conspiring to hack phones with former NoW editor Rebekah Brooks and former managing editor Stuart Kuttner.
The tabloid editor denied ever being played a voicemail message left on James Bond actor Daniel Craig's phone by secret lover Sienna Miller – or knowing that employees were targeting mobiles of the rich and famous.
Coulson rejected allegations from his former NoW colleague, journalist Dan Evans, that hewas present when the reporter played the message about the Layer Cake co-stars.
And he denied ever being aware that convicted hacker Glenn Mulcaire, who had been employed by the now-defunct Sunday tabloid, was illegally listening to voicemail messages.
Coulson told the phone-hacking trial he was unaware that his own mobile was targeted by Mulcaire from 2006 until police informed him three years later.
Evans has already admitted conspiracy to hack phones at former employer the Sunday Mirror between February 2003 and January 2005, and the same offence at the News of the World between April 2004 and June 2010.
He has also pleaded guilty to conspiracy to commit misconduct in public office between January 2008 and June 2010, and perverting the course of justice by giving a false statement in High Court proceedings.
Evans, 38, has also claimed that Coulson knew about his activities and told him a voicemail he taped from Miller to Craig exposing their alleged affair was "brilliant".
Defence counsel Timothy Langdale QC asked Coulson: "Dan Evans told the court that in September 2005 there was an occasion when he played to you a voicemail message left on Daniel Craig's telephone by Sienna Miller. Did any such incident take place?"
The defendant replied: "No, it did not."
Langdale also asked if Coulson was aware of Mulcaire's hacking methods, to which the editor replied: "Absolutely not – no."
Coulson said there was no reason to believe hacking techniques were used because journalists had key contacts connected to celebrities, particularly in the case of the Miller-Craig affair.
Their identities were not disclosed in court, though it has already been reported that a relative of Miller's then-boyfriend Jude Law had been supplying information.
Coulson said the NoW's front page exclusive about Miller and Craig came in the same week in 2005 when he had been busy overseeing a serialisation of British boxer Frank Bruno's biography.
He told the court: "It was a long, complicated book serialisation. I remember the publishers insisted on making changes quite late in the day, and I think the lawyers were involved as well.
"It took up a lot of my time."
Coulson said he believed information on the Miller-Craig affair might have come from Miller's mother.
He said: "People in and around celebrities – their relatives, their agents, their PRs – will talk to newspapers."
He said he had asked staff working on the story not to refer to Law as either a "sex addict" or a "love rat" in copy due to the paper's relationship with sources in his camp.
He said he believed Law was aware that some of those close to him were talking to the press.
Coulson said he could not remember having any specific dealings with Evans – whom the tabloid recruited in January 2005 – during their time on the paper.
But he told the court: "I am sure we would have spoken to each other.
"If a new member of staff arrives, I would normally make the point of saying hello and having a chat with them.
"I am sure that happened, but none (of the conversations) stick in my memory."
Coulson said his personal involvement as editor with stories and reporters "varied".
He said: "There was no hard and fast set of rules in the way the story was researched and prepared."
Responding to suggestions earlier in the trial that he had bullied then-NoW royal editor Goodman by demoting him and reducing his responsibilities, Coulson said: "I'm not a bully.
"If I made a remark in conference or said something – it's a newspaper, that happens – I would apologise for it.
"I did nothing to undermine or attack Clive Goodman."
All seven defendants deny all charges against them.
The case was adjourned until 10am tomorrow.