[1]: 85  By 1889, with engineering challenges caused by frequent landslides, slippage of equipment and mud, plus disease, the effort failed in bankruptcy.

The US had negotiated the Hay–Herrán Treaty with Colombia in early 1903 that would give it control of the canal and would include the purchase of the French-held land for $40 million.

[3] When the Congress of Colombia rejected that Treaty on August 12, 1903, Bunau-Varilla and the other French investors were faced with the prospect of losing everything.

As part of the Hay–Bunau-Varilla negotiations, the U.S. bought the shares and assets of the Compagnie Nouvelle du Canal de Panama for $40 million as originally stipulated in the Hay–Herrán Treaty.

[7][8] The treaty was quickly drafted and signed by Bunau-Varilla and Hay the night before the Panamanian delegation arrived in Washington.