A scandal-tainted mutual aid organization for small enterprises made annual payments of up to 200 million yen — disguised as party membership fees — to the ruling Liberal Democratic Party from 1991 to 1999, sources familiar with the case said Saturday.

KSD apparently reported the donations as the LDP membership fees for tens of thousands of managers of small and midsize companies that were listed — without their consent — as members of the ruling party.

The money was paid via KSD Homeikai — a welfare cooperative affiliated with the group, the sources said.

“The conduct was aimed at reinforcing the group’s influence on the LDP,” one of the sources told Kyodo News.

The number of fake memberships peaked at about 90,000 in 1998, when the “membership fees” paid to the LDP totaled about 200 million yen. No payments have been made this year, the sources said.

KSD, which is under the Labor Ministry’s supervision, chiefly provides workers’ compensation insurance to small business operators. It has some 1.07 million members, with annual premiums for its mutual aid scheme reaching about 25 billion yen.

Prosecutors raided KSD’s headquarters in Tokyo on Oct. 6. They suspect former director Tadao Koseki, 79, who resigned the following day, of misappropriating several hundred million yen of the organization’s funds by lending the money to its numerous affiliates without sufficient collateral.

The prosecutors also searched a Tokyo branch of the LDP. Aside from the faked party membership fees, KSD donated more than 130 million yen to the LDP branch through KSD Homeikai from 1996 to 1998.

Although KSD is banned from making political contributions as it is a public interest organization, it allegedly provided hefty donations to the party via a complicated procedure that would not contravene the political funds control law.

LDP sources said they are worried prosecutors may be targeting individual party lawmakers in connection with the KSD case. Opposition leaders say they will try, via Diet debate, to corner the administration of Prime Minister Yoshiro Mori by exposing the party’s dubious ties with the organization.

Koseki is believed to have tried to boost his connection with the LDP through Masakuni Murakami, an influential Upper House lawmaker. He is known to have stepped up support for Murakami after the lawmaker became labor minister in 1992.

Other recipients of donations from KSD affiliates include former Education Minister Hirofumi Nakasone and more than a dozen other LDP members of the Upper House.

A source close to KSD said Koseki apparently sought LDP help to realize legislative measures to support small companies, such as cuts in inheritance tax levied on business owners.

KSD was established in 1964 by Koseki, who once worked at a labor standards office.

Since the 1970s, he has created a number of affiliates — including a wedding parlor operator and mail-order trading company — in which he has installed his relatives as executives.

After Koseki’s resignation, KSD announced that its affiliates involved in political activities would be disbanded.

In a news conference last week, KSD Deputy President Tadao Koyama announced that KSD will no longer provide support for specific political parties or lawmakers, adding that he will request the organization’s affiliated companies purge Koseki’s relatives from their boards.

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