By Dan Levine

(Reuters) - The first indictment of a bishop for failing to report child pornography would have been groundbreaking in itself but legal experts say a second charge -- against the diocese -- is almost as rare.

Bishop Robert Finn of the Catholic Diocese of Kansas City-St. Joseph appeared in court on Friday on one count of failure to report child abuse. Prosecutors in Jackson County, Missouri, alleged Finn knew in December 2010 about hundreds of photos of children on Reverend Shawn Ratigan's laptop but did not notify authorities for five months.

Finn pleaded not guilty to the charge.

Prosecutors leveled a second charge against the diocese itself, which also pleaded not guilty.

"You don't want to tarnish the name of the Catholic Church, which can do many good things," said Brian Klopfenstein, a former prosecutor in Missouri. "But maybe they felt they had to do something profound to get people's attention."

Prosecutors are often wary about charging entities, as opposed to individuals. In one famous case, the U.S. government was criticized after it indicted accounting giant Arthur Andersen in 2002, which led to the loss of several thousand jobs.

Corporations commonly hire former prosecutors to internally investigate wrongdoing and then turn their findings over to the authorities as a show of cooperation.

The Kansas City diocese also hired a former federal prosecutor to investigate itself and his report concluded that diocese leaders "failed to follow their own policies and procedures" in Ratigan's case.

Finn stressed his cooperation with law enforcement on Friday.

"Diocesan staff and I have given hours of testimony before grand juries, delivered documents and answered questions fully," Finn said.

Jackson County Prosecutor Jean Peters Baker said the charges against Finn and the diocese "had nothing to do with the Catholic faith."

A spokesman for the government did not respond to follow-up

questions on Saturday about the decision to indict the diocese.

Criminal cases against a diocese are not unprecedented. The archdiocese in Cincinnati pleaded guilty in 2003 for failing to report abuse and was fined $10,000, according to published reports. The diocese in Manchester, New Hampshire, cut a deal with prosecutors the previous year that helped it avoid charges.

The Kansas City diocese had paid $10 million in 2008 to settle a civil lawsuit over priest abuse and agreed to several reforms.

"The facts of this case are just so outrageous that couldn't help but do this," said Patrick Noaker, an attorney for abuse victims who is petitioning a court to enforce the 2008 Kansas City settlement.

Rebecca Randles, another victim's attorney involved in the petition, said her clients began testifying before the grand jury in Finn's case in August, and the last had appeared about two weeks ago. She declined to discuss their testimony.

By charging the diocese, prosecutors may have wanted to signal the level of their frustration.

"If it's so damn bad and you've been warned and warned and warned and you pay a settlement and there's no action," Klopfenstein said, "then it's almost like even though it's God's house, you can't turn a blind eye."

(Reporting by Dan Levine; Editing by Bill Trott)