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The Panama scandals (also known as the Panama Canal Scandal or Panama Affair) was a corruption affair that broke out in the French Third Republic in 1892, linked to a French company's failed attempt at constructing a Panama Canal. Close to half a billion were lost and members of the French government had taken bribes to keep quiet about the Panama Canal Company's financial troubles in what is regarded as the largest monetary corruption scandal of the 19th century.
The dimensions of the bankruptcy were clear by 1892. Some 800,000 French people, including 15,000 single women, had lost their investments in the , bonds and founder shares of the Panama Canal Company, to the considerable sum of approximately 1.8 billion gold Francs. From the nine stock issues, the Panama Canal Company received 1.2 billion gold Francs, 960 million of which were invested in Panama, a large amount having been pocketed by financiers and politicians.p. 95-99.
In the bribery trial, the former city development minister, Charles Baïhaut, received five years imprisonment, of which he served three years. Baron Reinach – the financial adviser of the Canal Company and agent for the various bribes – committed suicide. Other defendants fled to England. On 7 December 1894, Lesseps died.
Politicians accused of involvement included Léon Bourgeois and Alfred Joseph Naquet. One hundred and four legislators were found to have been involved in the corruption, and Jean Jaurès was commissioned by the French parliament to conduct an enquiry into the matter, completed in 1893. The investigations into the Panama affair were resumed in 1897, but the defendants were acquitted.
Hannah Arendt argues that the affair had an immense importance in the development of French antisemitism, due to the involvement of two of German origin, Baron Jacques Reinach and Cornelius Herz. Although they were not among the bribed Parliament members and not on the company's board, according to Arendt they were in charge of distributing the bribe money, Reinach among the right wing of the bourgeois parties, Herz among the anti-clerical radicals. Reinach was a secret financial advisor to the government and handled its relations with the Panama Company. Herz was Reinach's contact in the radical wing, but Herz's double-dealing blackmail ultimately drove Reinach to suicide.
However, before his death Reinach gave a list of the suborned members of Parliament to the Libre Parole, Edouard Drumont's antisemitic daily, in exchange for the paper covering up Reinach's own role. Overnight, the story transformed La Libre Parole from an obscure sheet into one of the most influential papers in the country. The list of culprits was published morning by morning in small installments, so that hundreds of politicians had to live on tenterhooks for months. The scandal showed, in Arendt's view, that the middlemen between the business sector and the state were almost exclusively Jews, thus helping to pave the road for the Dreyfus Affair.
In 1894, a second French company, the Compagnie Nouvelle du Canal de Panama (New Panama Canal Company), was created to manage the assets, and potentially finish construction. The new company sought a buyer for the assets, with an asking price of US $109 million. The construction of the canal was taken over by the United States which bought out the lease, the shares and assets in the Hay–Bunau-Varilla Treaty of November 1903, for US $40 million. Work resumed in 1904 and the canal opened 3 August 1914.
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