Decline and Fall

Umbrella fell from grace of September 24, 1998, when the "T" had turned a large amount of the population into Zombies. The morning after, the U.S. Government had the city limits bordered off by the military, whilst they began an investigation into the matter.
Umbrella itself was divided on the issue of Raccoon City. Its virologists within the limits spent their time researching a cure, whilst weapons researchers had experimental B.O.W.'s sent in to receive combat data on their effectiveness at killing civilians. The Umbrella Biohazard Countermeasure Service (UBCS) was sent in to evacuate civilians, whilst "Monitors" installed within the four Platoon Delta's gathered the combat data, sacrificing their comrades to save their own lives, where they would receive a very generous sum for the data.
Meanwhile, some employees even turned on each other. Dr. Frost was killed by Monica for being in the way of a G-sample, whilst Yoko Suzuki - a tyrant virus test subject used in an experiment two years earlier - lost her Umbrella security card to the woman, who would soon walk right into the infected Birkin and become a host for his offspring.
Former Umbrella researcher Greg Mueller had a University professor create a cure - Daylight - before the Outbreak, knowing what would soon happen. He was wanted by Umbrella, not due to "Daylight", but because of an experiment Greg took with him when he left - an experimental Tyrant. "Thanatos" was activated and sent outside to kill UBCS personnel attempting to claim it. Unbeknownst to him or his creation, the supervisor "Nicholai Zinoviev" had infiltrated the building. Whilst discussing his plan with a few survivors, Nicholai shot through the ceiling, through Greg's head, and out of his neck - death was instantaneous. The University was destroyed by C-4 charges, whilst the Tyrant was killed by "Daylight" nearby. A fitting end to the beast, one of the ingredients of the anti-virus was the creature's very blood.
Elsewhere in Raccoon, an executive had a UBCS team on the lookout for renegade USS member Rodriguez, who had stolen the executive's "package". Rodriguez was waiting for a researcher - Linda - to return from an Umbrella facility as she left something important behind. This was AT1521 - Umbrella's answer to Daylight. After recovering it, another researcher - Carter - released the experimental "Tyrant T-0400TP" to kill off the MA-125 Hunter R running amok. Although seemingly taking orders from Carter without question, it had already counted the man as a threat - a bomb had been planted in the monster, and Carter had the detonator. The creatures betrayal led to the destruction of AT1521, leaving Linda to have to remember how to re-synthesise it all by herself.
Eventually, Umbrella was unable to delay the Presidents decision to authorise Mission Code XX. With little time left, all paramilitary forces were ordered to clear out. Carlos Oliveira and Jill Valentine were rescued by Barry Burton, whilst Nicholai attempted to escape solo by helicopter. Rodriguez was forced to abandon Linda and pull out, leading to an attempted shoot down by Tommy Nielson. The rocket missed, but the helicopter's sudden emergency manoeuvres led to the loss of the "package", revealing an horrific creation. The UBCS team, and T-0400TP were defeated by the giant blob and absorbed into its body. It would eventually be killed by a group of survivors, who successfully escaped Raccoon by HUMVEE with Linda.
Still, this was not the last story to tell of Umbrella's actions in the city. Leader of Umbrella's paramilitary organisations, Sergei Vladimir, stole the U.M.F.-013 storage system - also known as the Umbrella Archives. Ada Wong, a spy sent into Raccoon to gather "G" for Wesker, had finally completed her mission and hitched a ride on the chopper, witnessing the destruction of Raccoon City.
It would take many years, and many more tragedies to finally gather enough evidence to condemn Umbrella.
Umbrella's fortunes failed to improve in the time shortly after the Raccoon City incident. But with a barrage of false witnesses and Code XX destroying all evidence, all blame for the incident was carefully shifted to the U.S. Government. Despite Linda and Yoko's appearance at the Supreme court, Umbrella survived.
On Sheena Island, undercover investigator, Ark Thompson, operating on behalf of Leon S. Kennedy, succeeded in destroying Umbrella's Tyrant production plant after a senior executive assigned to the island unleashed the t-virus on its citizens. Shortly afterwards, when Claire Redfield broke into Umbrella's Paris facilities in search of her brother, she was captured and sent to Umbrella's illegal prison camp on Rockfort Island. While there, she witnessed Albert Wesker attack the island in search of the T-Veronica virus, another descendant of Progenitor. Escaping the island, she found herself trapped at the Antarctic Transport Terminal, where Edward Ashford's granddaughter, Alexia Ashford, awoke from a self-induced coma with a desire to establish a new order.
With the destruction of Sheena Island, Rockfort Island and the Antarctic Transport Terminal, most of Umbrella's illegitimate operations had been shut down. This, combined with the loss of so many of Umbrella's research and security personnel throughout each of the disastrous incidents, left Umbrella with little chance of reforming said operations or regaining the years of research lost thus far.