CHICAGO, May 9 (Reuters) - Conrad Black's business partner of 30 years testified that he knew the scheme he and the former media mogul devised to pay themselves bonuses was wrong.David Radler, star witness at Black's trial who has already pleaded guilty to fraud and faces jail time, described how he and Black divided up $600,000 from the proceeds of two deals made as Black was selling off the media empire they had built.

Prosecutors contend Black and three co-defendants stole $60 million from his main company — Hollinger International Inc. — by using non-compete payments that should have gone to the company to give themselves tax-free bonuses.

Such payments were set aside from the proceeds after newspaper sale prices were determined, and were designed to give the buyer a guarantee the seller would not reenter the same media market.

"Did you advise the Hollinger board or audit committee?" of the $600,000 that was kept, lead prosecutor Eric Sussman asked Radler.

"No I didn't," Radler replied.

"Why not?" Sussman asked.

"I knew the process of creating these non-competes was wrong," Radler said.

Radler, who faces 29 months in prison under a plea agreement reached two years ago in the same case, is the US government's chief witness against Black and the others.

Prosecutors have tried to convince the jury that Black and Radler operated in tandem in everything they did, and since Radler had already admitted guilt, that Black too is culpable.

Later Sussman asked Radler about early meetings with prosecutors and government agents.

"Why did you lie?" Sussman queried.

"During these initial meetings I was trying to rationalise some of these transactions ... I knew the consequences" of revealing the truth about the payments, Radler responded.

Radler then came under intense questioning by Black's defence lawyer Edward Greenspan, who brought up the issue of the witness's veracity.

"If you lie to the government, the defense attorneys or the jury, your plea agreement becomes null and void, correct?" Greenspan asked.

"I really don't understand your question," an agitated Radler shot back. "I am here to tell the truth."

Defence lawyers had again asked for a mistrial on Wednesday but were denied. This time they objected to prosecutors delving, with Radler's help, into memos from 2000 to 2002 taken from some of 13 boxes that Black was caught removing from his Toronto offices in 2005.

In those documents, some of which were presented in court, Black railed against Hollinger International shareholders who had challenged the non-competes and various other spending.

Black said executives should make "conciliatory gestures" but insisted such moves were not "a confession of excess" and that would cut into the "comfortable enjoyment" of the money the company was making.

In response to a question from Sussman about one of the memos, Radler said: "In my opinion, he (Black) was saying he intended to run the company (Hollinger International) like a private company, not a public company."

In one memo, Black wrote that the officers should be "unapologetic ... We created this company ... and we brought these assets back to health and great profitability."

In another, Black said that "the goose keeps laying a golden egg every year and the best is yet to come."

The 62-year-old Black, a Canadian-born member of Britain's House of Lords, faces up to 101 years in prison, millions in fines and $92 million in forfeitures if convicted.

His co-defendants face lesser charges.

The case in federal court is being prosecuted by the office of US Attorney Patrick Fitzgerald, who recently won a perjury conviction against former top White House aide Lewis "Scooter" Libby.

Fitzgerald, who is not participating in the courtroom questioning, watched part of Wednesday's session in court.