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The revelation is likely to fuel complaints by Trump that the dossier, which the president has derided as "phony stuff," is a politically motivated collection of salacious claims.
The FBI as a matter of course worked to corroborate the document, and weeks ago questioned the former British spy who helped compile the claims in the dossier.
The dossier, which circulated in Washington last year and was turned over to the FBI for its review, contends that Russia was engaged in a longstanding effort to aid Trump and had amassed compromising information about him.
Trump has repeatedly dismissed the document as false and in recent days has questioned on Twitter whether Democrats or the FBI had helped fund it.
Officials behind the now discredited "Dossier" plead the Fifth. Justice Department and/or FBI should immediately release who paid for it.— Donald J. Trump (@realDonaldTrump) October 21, 2017
Trump has also attacked the findings of the FBI, NSA, and CIA that Russia waged a large-scale influence campaign to interfere in the election. The FBI and the CIA have said with high confidence that the effort was aimed at hurting Clinton's candidacy and helping Trump. The NSA found the same with "moderate" confidence.
The person familiar with the matter, who spoke on condition of anonymity to discuss confidential client matters, said the arrangement was brokered by Marc Elias, a lawyer for the campaign and the DNC, and his law firm of Perkins Coie.
The deal began around last spring, when the firm was approached by Fusion GPS, the political research firm behind the dossier, and lasted into the fall, right before Election Day, according to the person.
RELATED: Read the Perkins Coie letter obtained by the AP (.pdf)
Elias did not immediately return an email seeking comment, and representatives of Fusion GPS declined to comment. The Washington Post first reported the arrangement.
Clinton campaign officials did not immediately comment, but in a statement, a DNC spokeswoman said chairman Tom Perez was not part of the decision-making and was unaware that Perkins Coie was working with Fusion GPS.
"But let's be clear, there is a serious federal investigation into the Trump campaign's ties to Russia, and the American public deserves to know what happened," the statement said.
Former Clinton campaign spokesman Brian Fallon said on Twitter that he regretted not knowing about Steele's hiring before the election, and that had he known, "I would have volunteered to go to Europe and try to help him."
According to a letter obtained by the AP Tuesday night, representatives of Fusion GPS reached out to the firm in early March 2016 to express interest in continuing research on Trump it had begun "for one or more other clients during the Republican primary contest."
At that time, the Clinton campaign was looking toward the general election and was pivoting attention toward Trump, who was emerging as the Republican front-runner. The person said Trump, by virtue of his extensive international business dealings, was seen as a natural target for complicated opposition research abroad.
Perkins Coie then engaged Fusion GPS in April 2016 "to perform a variety of research services during the 2016 election cycle," according to the letter.
The dossier created a political firestorm in January when it was revealed that then-FBI Director James Comey had alerted Trump to the existence of allegations about him and Russia. Since then, Trump has repeatedly attacked it and Republicans in Congress have worked to discredit it, even issuing a subpoena to force the disclosure of Fusion GPS's bank records.
The letter, sent Tuesday by the law firm's general counsel to a lawyer for Fusion GPS, was intended to release the research firm from its obligation to keep confidential the identity of its client.