House of Councilors Takao Koyama was arrested Tuesday by the Tokyo District Public Prosecutor's Office on suspicion of accepting a 20 million yen bribe in 1996 from KSD, an insurance foundation under the purview of the former Labor Ministry.

Prosecutors suspect that Koyama, a 57-year-old member of the Liberal Democratic Party, received the money from 79-year-old Tadao Koseki, founder and then president of KSD, as payment for asking questions on the insurer's behalf in various Diet panels, they said.

KSD provides industrial accident insurance to small businesses.

The prosecutors believe the questions Koyama asked led bureaucrats to reveal ministerial policies and plans that benefited KSD, they said. Koyama allegedly acted on KSD's behalf in the Upper House's labor and social policy, and small-businesses committees between November 1995 and April 1996, investigative sources said.

Among questions attributed to KSD, Koyama is said to have urged the ministry to extend the period of stay for foreign workers invited to Japan as trainees and to have asked the Finance Ministry to introduce measures to reduce inheritance taxes to benefit small-business owners, the sources said.

They said Koyama, who was elected to a six-year term in July 1995 and served as parliamentary vice labor minister from July 1998 to October 1999, posed the questions at Koseki's request and demanded the money in return.

Koyama was quoted by the sources as admitting the allegations to prosecutors.

In a statement released through his aides to the media, however, he said, "I did not ask the questions on behalf of any particular organizations," and "I apologize to people for failing to carry out my tasks as a lawmaker."

Prosecutors on Tuesday also began searching Koyama's office in Tokyo and his house in Kawagoe, Saitama Prefecture. Under the Constitution, Diet members are only exempt from arrests while the Diet is in session. The house has been in recess since Dec. 2.

Just hours after his arrest, Koyama offered in writing to leave the LDP. Opposition parties had already begun urging him to resign from the Diet. If Koyama does not resign voluntarily, the opposition camp will jointly submit a resolution to the Upper House calling for his resignation once an ordinary Diet session is convened on Jan. 31, opposition officials said.

The case is expected to affect the ordinary parliamentary session set to open later this month, as well as an Upper House election scheduled for July.

Opposition parties appear to be preparing to mount fierce attacks on the LDP over the apparently cozy ties between Koyama, KSD and influential LDP upper chamber lawmaker Masakuni Murakami, to whom Koyama served as secretary from 1980 to 1992.

Murakami resigned Monday from his post as the LDP's Upper House leader, saying he regretted that one of his political support groups had "caused trouble." Although he did not specifically name the group, it is widely believed to be KSD.

After hearing of Koyama's arrest, LDP Secretary General Makoto Koga said, "I heartily apologize for (our colleague's) damage to (the public's) trust in politics."

At a press conference, Koga stopped short of saying that Koyama should resign, saying only, "We will watch the development of the investigation."

Prosecutors have discovered that KSD tried to approach top political names such as Prime Minister Yoshiro Mori, former Chief Cabinet Secretary Mikio Aoki and former Education Minister Hirofumi Nakasone by offering their support groups free concert tickets and by purchasing tickets for political fundraising parties for these politicians, the sources said.

KSD also gave Fukushiro Nukaga, state minister in charge of economic and fiscal policy and information technology, 15 million yen in 1999 and 2000. Nukaga claimed later he had returned the money.

So far, KSD is believed to have supported about 200 lawmakers, the sources said.

Chief Cabinet Secretary Yasuo Fukuda said, "It is very regrettable that a lawmaker, who is involved in the important job of state politics, has been arrested on suspicion of accepting (a bribe) in connection with questions he asked in the Diet."

Asked whether the arrest would have any effect on Mori's government, Fukuda said, "This is by no means something good for the Mori administration. This issue could have a very large impact."

Tetsuzo Fuyushiba, secretary general of New Komeito, a member of the ruling bloc, voiced hope that Koyama would be sternly punished.

"He should quit as soon as possible to restore people's trust in politics," Fuyushiba said in a statement.

KSD's Koseki was arrested in October last year. He was indicted for breach of trust and other charges relating to misuse of KSD money.

The Association for International Manpower Development of Medium and Small Enterprises, Japan, an organization he established, recruits foreign workers for employment as trainees in small firms, where they serve as a source of cheap labor.

In his office in 1997, Koyama is also alleged to have asked senior officials of the Labor Ministry, which was amalgamated into the new Health, Labor and Welfare Ministry earlier this month, to expedite a project to establish a private college to train engineers.

The lawmaker was engaged in efforts to launch the Institute of Technologists, which runs four-year courses and is supported by an affiliate of KSD, the sources said. The school is scheduled to open in April in Gyoda, Saitama Prefecture.

Labor Ministry subsidies to the school increased while Koyama served as parliamentary vice labor minister.

The prosecutors discovered that KSD tried to approach such top political leaders as Mori, former Chief Cabinet Secretary Mikio Aoki and former Education Minister Hirofumi Nakasone by offering them free concert tickets and buying tickets to fundraising parties held for them, the sources said.

KSD is supervised by the Health, Labor and Welfare Ministry and has special tax privileges.

Some 1.07 million small companies are members of KSD schemes and pay about 25 billion yen in combined annual premiums.