This is a broad question that is difficult to answer succinctly or completely. Part of the reason for this is that we have to question the definition of our terms, and incorporate the complexity of human life and reasoning.
The question "what happens to ethics?" might imply that ethics is a monumental edifice; that is to say, it is an institution like a college, or an ideology like communism. Ethics isn't really tied to any particular action or event; it is a way of describing actions and events. Ethics is basically distinguishing and defining wrong and right. There are many nuances on this definition, or distinctions between morality and ethics, but the core concept is basically the same. Thus, I'm not being obtuse at all when I say that an illegal act performed by an individual does not change the philosophical concept of right or wrong. It does change our interpretation of that concept, or at least its application at that particular instance. I'll elaborate on this point a bit.
Let's say that a lawgiver, such as a parent, declares that smoking cigarettes is illegal. They provide a list of reasons for this law. They are later caught smoking. How might this be interpreted?
Broadly, the interpretations could fall into a few lines of thought;
- The lawgiver's hypocrisy does not invalidate the law; in fact it points to the lack of self-control that requires the law in the first place
- The lawgiver's hypocrisy invalidates the law because it demonstrates that the law is ineffective or poorly articulated
- The lawgiver's hypocrisy invalidates the law because the lawgiver is using their power to gain a benefit for themselves
It's hard to say which is the most popular or accurate in any given circumstance, but it definitely calls the ethics of the situation into question. The problem is that trust has been violated. People trust the lawgiver to uphold ethics for everyone's benefit; violating this trust causes people to doubt both the individual and the system. Generalizing further, we can say that breaking the law will;
- cause people to question the law
- cause people to question the lawgiver and their associates
- cause people to question each other/human nature
- create distrust, rejection or hostility toward the lawgiver
- create a divided population, separating those who defend the lawgiver from those that want to prosecute them
We might also consider this in terms of "fundamentals" of ethics; for example, smoking a cigarette might be good or bad. There are arguments for both cases. However nearly everyone agrees that hypocrisy, lying and cheating are bad, even though they may attempt to get away with it on occasion. Consider that a society that constantly lies and cheats would quickly become completely untrustworthy, whereas the negative consequences of smoking are more long-term and abstract.
We cannot say that society, or the "citizens" will act in a particular way with any certainty; they might reject the law, or they might reject the lawgiver, dependent upon the circumstances. However the fundamental ethical concepts are often left largely intact; it is not often that a society completely rejects its ideas of right and wrong because of a single transgression by an empowered individual.
I have included a link to Kohlberg's stages of moral development, this might give you some insights into the sort of research that's been done to investigate how people pursue ethical questions when there is a conflict between the individual and the law.