Tadao Koseki, the former director of a welfare business foundation for small businesses, was arrested Wednesday afternoon for allegedly misappropriating KSD funds, sources said.
Koseki, 79, was arrested by the Tokyo District Public Prosecutor's Office on suspicion of embezzlement just hours after being questioned on suspicion of breach of trust, the sources said.
Prosecutors raided KSD's headquarters in Tokyo on Oct. 6. They suspect Koseki, who resigned as group director the following day, of misappropriating several hundred million yen of the foundation's funds by lending the money to its numerous affiliates without sufficient collateral.
KSD -- an insurance group under the Labor Ministry's jurisdiction -- allegedly paid between 100 million yen and 200 million yen annually to the ruling Liberal Democratic Party between 1991 and 1999 in payments disguised as party membership fees, according to investigative sources.
The money was paid via KSD Homeikai, a welfare cooperative affiliated with the group, and was falsely reported as party membership fees, the sources said.
"The conduct was aimed at reinforcing the group's influence on the LDP," one of the sources said.
The number of faked memberships peaked at about 90,000 in 1998 with their "fees" totaling about 200 million yen.
KSD has around 1.07 million members, with annual premiums for the foundation's mutual aid insurance amounting to about 25 billion yen.