WASHINGTON -(Dow Jones)- Civil liberties groups urged congressional lawmakers not to pursue a compromise solution that would offer phone companies immunity from their alleged participation in the U.S. government's warrantless wiretapping program.

The proposed solution would allow court cases over the issue against phone companies including AT&T Inc. (T) and Verizon Communications Inc. (VZ) to proceed. However, the phone companies would be exempted from having to pay any financial penalties.

The compromise was raised last week by Sen. Arlen Specter, R-Pa., the ranking minority member of the Senate Judiciary Committee, the panel that is considering the immunity issue.

Senate Majority Leader Harry Reid, D-Nev., also mentioned the compromise, known as indemnification, when speaking to reporters last week.

During a conference call Monday, representatives from the American Civil Liberties Union, the Electronic Frontier Foundation and the Brennan Center for Justice said the compromise would allow the phone companies to think their alleged participation in the controversial program had no consequences.

"Whatever is done on the questions of damages, it has to serve as a deterrent, " said Harvey Grossman, legal director of the ACLU of Illinois. "A 'get out of jail' card would only increase the likelihood of this type of behavior in the future."

Kevin Bankston, an attorney at the EFF, said that while some sort of compromise deal was better than blanket immunity for the phone companies, he opposed this indemnification. Bankston is representing some of the plaintiffs in the cases against the phone companies.

He said that while his clients' primary consideration is that the truth about the extent of the phone companies' cooperation with the U.S. government program be known, he agreed with the ACLU that the phone companies should have to face the threat of penalties.

"Indemnifying the phone companies would let them off the hook," said Bankston.

It has been estimated the telecommunications sector could face potentially billions in dollars in legal fees and penalties fighting the litigation.

The civil liberties groups have been fiercely opposed to the idea that phone companies should receive immunity.

The Senate Intelligence Committee included an immunity clause in a version of legislation reauthorizing the government wiretapping program it approved. It is up to the Judiciary Committee to decide if it wants to add its support or continue the debate.

The Judiciary panel is scheduled to hold a markup on the legislation - the Foreign Intelligence Surveillance Act - Thursday at which a decision may be made on the immunity issue.

At that hearing, Sen. Patrick Leahy, D-Vt., the chairman of the committee, is expected to introduce an amendment to the bill that could include anything from a series of relatively minor adjustments to a complete rewrite of the bill.

A spokeswoman for the committee said the immunity question is still unsettled, as is the question of whether or not to indemnify the telephone companies.

A similar bill passed out of committee in the House doesn't include immunity or indemnification for the phone companies.

The administration has admitted the existence of a secret wiretapping program in the wake of the Sept. 11, 2001 attacks but has never confirmed the involvement of the telecommunications companies.

AT&T, Verizon and Qwest Communications International Inc. (Q) have always refused to comment on the issue, although it has been widely reported that Qwest turned down government requests that it hand over customer phone and email records.

By Corey Boles and John Godfrey

Online: http://money.cnn.com/news/newsfeeds/articles/djf500/200711051611DOWJONESDJONLINE000567_FORTUNE5.htm.