Garcia ordered the documents burned after the Metro Bloc came under attack from Don Berna, Palacio told prosecutors.
He also revealed that Garcia instructed his men to 'exhume and incinerate 68 bodies in the municipality of Santo Domingo and more than 50 in San Roque, to avoid their being found by authorities'.
In earlier testimony, Palacio said that Garcia had his men infiltrate army posts to take arms and uniforms for the AUC.
He also implicated former army chief General Mario Montoya, now Colombia's ambassador to the Dominican Republic, in the provision of weapons to the AUC.
AUC members have killed at least 21,000 people over the past 22 years, according to a report from the Colombian Attorney General's Office.
The report was compiled by the AG's office's Justice and Peace Unit, which is responsible for gathering the statements of the militiamen who demobilized in the 2003-2007 peace process.