In an affidavit filed on Monday, the federal agent acknowledged their error when they alleged in an October filing that Daniel Edmund Duggan, 55, was the director of a company that he was not, saying they made an incorrect inference or assumption.
Duggan's barrister Gregory Jones sought to cross-examine the federal agent on Wednesday in a bid to discover what information their error was based on.
"You can only assume or infer from something that is conveyed to you, otherwise you're just making it up," Mr Jones told the court.
Duggan was arrested at a supermarket car park in the NSW central west in October 2022 after a request from US authorities.
The former US military pilot, who became an Australian citizen in 2012, is accused of breaching US arms trafficking laws by training Chinese pilots while working at a South African flight school in the early 2010s.
The father of six denies the allegation.
A foreign restraining order issued by a US court has interfered with the sale of a southern NSW property to fund legal bills.
Duggan's lawyers are seeking to have the order discharged, telling the NSW Supreme Court it was based on incorrect information alleging Duggan was the director of a Hong Kong-based company called Power Art Trading.
"I misunderstood the material and made an assumption," the federal agent told the court on Wednesday under cross-examination from Mr Jones.
Barrister Greg O'Mahoney, acting for the Australian Federal Police commissioner, earlier read a relevant portion of the affidavit to the court.
"I seek to make clear I assumed or inferred incorrectly," he quoted.
"This assumption I made was in error and I regret that it occurred."
Mr Jones said it was "a truly unacceptable sequence of events" and called for the foreign order to be discharged.
"This court is not a rubber stamp," he said.
Mr O'Mahoney said there was no basis for a submission by Mr Jones that the AFP had treated the court with contempt.
"The mistake was not deliberate," he said.
The US order seeks to have a trustee take custody and control of an acreage property at Saddleback Mountain.
Mr O'Mahoney said the property had been valued at about $7 million or $8 million, and an offer had been received for $4.2 million.
Duggan's lawyers dropped a bid to access sensitive defence and intelligence reports in court on Friday, after earlier saying they were key to demonstrating overtly political aspects of the US extradition request.
Justice Nicholas Chen reserved a decision on Wednesday.
