California’s Mental Health Diversion in White Collar Matters

California’s evolving approach to criminal justice has created a powerful, and still underutilized, pathway for defendants whose alleged conduct is inseparable from underlying mental health conditions. For professionals and individuals facing felony white collar charges in state criminal court, such as allegations of money laundering, fraud, and embezzlement, this shift in policy creates better opportunities for individuals to address underlying mental health conditions which led to the alleged criminal acts. Treatment is an important consideration to prevent future recidivism.

When handled correctly, mental health diversion is a legally grounded, evidence-driven strategy that can halt prosecution, protect professional licenses, and redirect a case away from conviction and toward treatment. Mental health diversion should not be viewed as a plea for sympathy or a blanket excuse, but rather an avenue to treat one’s complex and often invisible underlying medical diagnoses. The discussion surrounding mental health can be sensitive to many, and it is important to consult an attorney who understands the complexity, impact, and potential for stigmatization of it all. A thoughtful criminal defense attorney can assist in analyzing whether mental health diversion would be a fit in a given case.

Penal Code § 1001.36

California’s mental health diversion statute, Penal Code § 1001.36, authorizes courts to postpone criminal proceedings while a defendant undergoes treatment for a qualifying mental disorder. If the defendant successfully completes diversion, the charges are dismissed.

The statute applies broadly even to many non-violent felony offenses commonly seen in white collar prosecutions.

To qualify, the defense must establish eligibility:

• The defendant suffers from a diagnosed mental disorder (excluding certain conditions like antisocial personality disorder or pedophilia);
• The disorder played a significant role in the alleged offense;
• A qualified expert supports the diagnosis and causal connection;
• The defendant consents to diversion and agrees to treatment;
• The defendant does not pose an unreasonable risk to public safety.

Judges retain discretion, which means evidence must be presented to the court that establishes the above eligibility factors. Once these factors are established, the court also determined whether an individual is suitable for mental health diversion treatment. “Suitability for diversion requires a defendant meet all the criteria in section 1001.36, subdivision (c) . . . [;] pose no unreasonable risk of danger to public safety[;] consent to diversion[;] and agree to comply with treatment as a condition of diversion.” People v. Hall (2024) 99 Cal.App.5th 1116; see also, People v. Qualkinbush (2022) 79 Cal.App.5th 879 (relying only on general sentencing objectives to find defendant unsuitable, court erred denying mental health diversion without considering the statutory principles and purpose of the mental health diversion statute).

The Overlooked Nexus Among White Collar Crimes

White collar cases often get framed as calculated, profit-driven misconduct. That narrative is convenient for prosecutors. It is also frequently incomplete. In reality, many alleged financial or regulatory offenses arise from:

• Major depressive disorder impairing judgment, motivation, and decision-making
• Generalized anxiety disorder driving irrational financial decisions or concealment behaviors
• Obsessive-compulsive disorder (OCD) manifesting in compulsive financial actions or record manipulation
• Bipolar disorder contributing to impulsivity, risk-taking, or distorted financial judgment
• Burnout and professional collapse in high-pressure careers

These are clinically recognized impairments that can directly influence conduct, choices, and despite best intentions, one’s ultimate act. For example, a defendant suffering from severe depression or compulsive disorders may lack the clarity, judgment, or volitional control that prosecutors often rely on to prove criminal intent. Aside from just the elements of the offense, suffering from a mental disorder can certainly look like calculated misconduct on the surface but beneath the conduct is impaired decision-making due to medical and clinical conditions.

The mental health diversion law does not require that mental health conditions fully explain the behavior at issue—only that it played a significant factor.

Application in White Collar Defense

A serious defense does not wait for sentencing to raise mental health diversion. This diversion request must be positioned early as it requires substantial analysis by the court, including time to retain professional medical evaluation. This may require forensic psychiatric or psychological evaluations, detailed reports linking diagnosis to conduct, and treatment plans demonstrating a path forward.

Protecting Professional Licenses

For physicians, attorneys, executives, and licensed professionals, a conviction is often more devastating than the criminal penalty itself because of the implications on licensing.

Diversion offers a route to dismissal and a careful assessment must be made whether it further avoids mandatory reporting consequences in certain contexts. As a default rule, dismissal due to completion of a diversion program do not necessarily absolve mandatory license reporting requirements. Bus. and Prof. Code § 490.2. Consulting an attorney is critically important to make this determination.

Mental health diversion may, however, strengthen arguments in administrative or licensing proceedings that preserve career viability in terms of the rehabilitation analysis. This is where an attorney with experience in licensing and criminal defense can drive effective advocacy in professionally high-stakes cases.

Conclusion

California’s mental health diversion statute reflects a broader recognition: not all criminal conduct is driven by criminal intent. In white collar cases, where the line between poor judgment and unlawful conduct can be thin, that recognition matters. For those whose underlying mental health conditions need treatment, this path is a worthwhile consideration but it requires early intervention, rigorous preparation, and a willingness to treatment programs.

George Tran

George Tran is an experienced trial lawyer with a proven record of success in high-stakes litigation and government investigations. As a former prosecutor with the U.S. Department of Justice and Santa Clara County District Attorney’s Office, he has led scores of complex criminal investigations into fraud, embezzlement, money laundering, tax evasion, and public corruption. He has tried over 30 cases to verdict in federal and state courts across the country and brings substantial experience navigating courtroom proceedings. Learn more here.