In the wake of the major setback in the Coalition's battle against the union, Mr Laundy said it was now paramount for the Senate to pass the government’s Ensuring Integrity Bill which would expand grounds for disqualifying union officials and cancelling union registration.

Mr Laundy said the event of the past week had clearly "emboldened" union leaders and he called on Labor to support the Bill to prove it will not continue to support union officials "that continuously flout the law”.

“The long list of charges the [CFMMEU] has been found guilty of should be something to be ashamed of - fines totalling nearly $15 million and around 70 officials currently before the courts.

“It’s simply unfathomable as to why Labor keeps turning a blind eye to the illegal behaviour of this union and joins in the celebrations on a rare occasion when it actually gets let off."

Mr Laundy said Australians deserve to know exactly what Opposition Leader Bill Shorten has promised the leaders of Australia’s most law-breaking union in return for its support.

"The real worry is the movement’s most renegade bunch of lawbreakers now stand to potentially have a puppet as Prime Minister,” Mr Laundy said.

Labor's Employment and Workplace Relations spokesman Brendan O'Connor said the decision of the Director of Public Prosecutions and police to withdraw the charges against the Construction, Forestry, Maritime, Mining and Energy Union officials was "an absolute humiliation for the Trade Union Royal Commission" which had referred them and "in particular for the Turnbull government".

"The government has been suggesting that there is systemic criminal conduct in the union movement. Quite frankly, there needs to be some examination in this matter, because there is a pattern of behaviour with respect to this government and its involvement with unions," he said.

ACTU Secretary Sally McManus said the Turnbull government had serious questions to answer over their knowledge of events that led to blackmail charges against Mr Setka and Mr Reardon.

“The possibility that members of the government were closely consulting with Boral over events that led to these discredited charges is deeply disturbing. This possibility should be fully investigated," she said.

The CFMEU has been fined $10 million for the boycotts and blockades it organised against building supplies company Boral and its subsequent flouting of court orders to cease the behaviour. The union action against Boral was sparked by a dispute with its customer Grocon.

Ms McManus said she believes the laws that led to those fines needed to be changed.

Liberal Senator Eric Abetz dismissed union claims that he, while serving as Employment Minister and Tony Abbott when he was Prime Minister were involved in the CFMEU court action.

"The facts are clear: the charges were laid by Victoria Police in 2015 and prosecuted by the Victorian Director of Public Prosecutions thereafter – Victorian authorities under a Victorian Labor government," Mr Abetz said.

"Any suggestion that Mr Abbott, Premier Andrews, myself and my then counterpart were involved in some conspiracy to have charges laid and prosecuted by Victorian authorities is not only implausible but completely laughable."

Denita Wawn, chief executive Master Builders Australia said it had no comment on the particular case.

"Unions should obey the law just like everyone else in the community is expected to do. It’s really simple, no one benefits and bad things happen when people or organisations think they are above the law," she said.

"Sadly, the courts have found, in case after case, that the CFMMEU behaved like the community’s laws did not apply to them and the reality is that without the ABCC the union would never have been held to account as they were on these occasions. As one Judge noted the CFMMEU has an attitude of ignoring and defying the law."

Australian Chamber of Commerce and Industry chief executive James Pearson said the ACTU needs to tell Australians if it supports Mr Setka's view that “if you played by the laws you will never win”.

"[E]ven if the rules are changed, as the ACTU is demanding, do unions have any intention of following them?," he said.

Andrew Stewart, a professor of employment law from the University of Adelaide, said the idea of criminal prosecution for alleged blackmail over an industrial demand was "extraordinary" because it was not in the context of any personal gain for the union officials concerned.

"The genie is out of the bottle where we have this extraordinary suggestion that the criminal law of blackmail has a role to play in regulating industrial conduct," he said.

"What this case might have told us was whether union officials or workers can be imprisoned simply for threatening industrial action. If there is a role for the crime of blackmail here, potentially it doesn't just apply when someone from one of the country's most militant unions is making threats. It could apply to the likes of nurses, teachers and doctors".

with Benjamin Preiss