OTHER THINGS YOU MAY HAVE MISSED – AUGUST 19

19 August 2022

JAPAN PLANS CYBERSECURITY TAX BREAK FOR DEFENCE CONTRACTORS

On 19 August, Nikkei Asia reported that Japan will consider offering tax incentives to defence contractors that bolster cybersecurity, aiming to better guard sensitive information from state-supported actors.  Many suppliers, including the smaller ones, could qualify if they adopt effective antivirus software, 2-step authorisation to access sensitive information and other safeguards.

https://asia.nikkei.com/Business/Aerospace-Defense/Japan-plans-cybersecurity-tax-break-for-defense-contractors

SOLAR PANELS PILING UP AT US BORDER BECAUSE OF XINJIANG FORCED LABOUR LAW

On 14 August, Bloomberg reported that this follows the passing of a law targeting forced labour in China’s Xinjiang region.  It says that modules with capacity of more than 3 gigawatts have been held by US Customs since June, when the US Uyghur Forced Labor Prevention Act came into effect. 

https://www.bloomberg.com/news/articles/2022-08-15/solar-panels-piling-up-at-us-border-on-xinjiang-forced-labor-law

RUSSIAN ACCUSED OF MONEY LAUNDERING TIED TO RYUK RANSOMWARE GANG EXTRADITED TO US

On 18 August, the Wall Street Journal reported on the case of Denis Dubnikov, a 29-year-old Russian who has been extradited from the Netherlands.  It is alleged that he and his co-conspirators laundered bitcoin extracted from victims of Ryuk ransomware attacks through financial transactions, in both crypto and fiat currencies, to conceal the source of the funds.  He has pleaded not guilty in federal court.  At least 12 more individuals are facing charges in the case but prosecutors and court documents did not name his alleged co-conspirators.  Identified in 2018, Ryuk is a type of ransomware that encrypts files and attempts to delete any system back-ups on a computer or network.  The accused are said to have directed victims to pay in bitcoin and provided them with a wallet address to make the ransom payments.

https://www.wsj.com/articles/u-s-extradited-russian-accused-of-money-laundering-tied-to-ryuk-ransomware-gang-11660851002

UK: COURT OF APPEAL’S DECISION MEANS THAT THERE MAY BE A RISE IN THE NUMBER OF MALICIOUS FALSEHOOD CLAIMS

On 17 August, Walker Morris LLP reported on a recent case in which the Court of Appeal held that a claimant did not need to demonstrate actual monetary loss as a matter of fact.  Instead, it was satisfied that the claimant would only have to show that, when viewed objectively when the malicious statement was published, monetary losses would likely follow in the normal course of things.  The article warns that the decision means that there may be a rise in the number of malicious falsehood claims being issued by prospective claimants.

https://www.walkermorris.co.uk/in-brief/malicious-falsehood-claims/

AUSTRALIA: ACMA BLOCKS ANOTHER 6 OFFSHORE GAMBLING AND AFFILIATE MARKETING WEBSITES

On 18 August, iGB reported that the latest action means that, since the Australian Communications and Media Authority (ACMA) made its first blocking request to ISP in November 2019, some 568 illegal gambling and affiliate websites have been blocked.  In addition, over 170 illegal services have also pulled out of the Australian market since the ACMA started enforcing new illegal offshore gambling rules in 2017.

https://igamingbusiness.com/legal-compliance/acma-blocks-another-six-offshore-gambling-and-affiliate-marketing-websites

Meanwhile, on 18 August, iGB also reported that the Colombian regulator Coljuegos blocked 1,577 websites during the first half of 2022.

https://igamingbusiness.com/gaming/coljuegos-shuts-down-1577-unlicensed-sites

PANAMA: GUIDELINES AND REQUIREMENTS AIMED AT PROFESSIONALS WHO CARRY OUT THE ACTIVITIES SUBJECT TO SUPERVISION

On 19 August, La Estrella de Panama reported that Panama has updated the guidelines and guidelines aimed at professionals who carry out the activities subject to supervision, in order to raise the level of compliance with a risk-based approach, and strengthen the money laundering prevention system. 

https://www.laestrella.com.pa/nacional/220819/panama-fortalece-sistema-prevencion-blanqueo

UK CONFIRMS EORI NUMBER NOW MANDATORY FOR EXPORTS OF LICENSED GOODS ON SPIRE

On 18 August, the Institute of Export & International Trade said that the Export Control Joint Unit (ECJU) has confirmed that the use of EORI (Economic Operator Registration Identification) numbers will now be mandatory for licence registrations on SPIRE – the ECJU’s exporting licensing system for the control of military, paramilitary and dual-use goods.

https://www.export.org.uk/news/614490/Government-confirms-EORI-number-now-mandatory-for-exports-of-licensed-goods-on-SPIRE.htm

HOW RUSSIA IS DODGING WESTERN SANCTIONS WITH GREY-MARKET IMPORTS

On 18 August, Deutsche Welle reported that Russians continue to have access to such goods as iPhones and Zara dresses even months after their Western makers left Russia.  But, it asks, are these parallel imports even legal?  Parallel imports, or grey-market purchases, into Russia totalled $6 billion from May to July, Russia’s deputy prime minister and minister of industry and trade has said.  Parallel imports refer to goods that are imported into a market without their manufacturers’ consent, they are authentic goods, but they may be meant by the manufacturer to be sold in a different country or region.

https://www.dw.com/en/how-russia-is-dodging-western-sanctions-with-gray-market-imports/a-62850223

WORLD BANK AFFILIATE BACKS A BLOCKCHAIN-BASED PLATFORM TO TRADE CARBON OFFSETS

On 18 August, Finbold reported that the International Finance Corporation (IFC), a member of the World Bank Group that focuses on investing in less-developed nations, has formed a partnership with Chia Network, a blockchain platform with an emphasis on the energy industry, for the Carbon Opportunities Fund.

https://finbold.com/world-bank-affiliate-ifc-backs-a-blockchain-based-platform-to-trade-carbon-offsets/

UK: LESS THAN 62,000 OF 1 MILLION TRUSTS REGISTERED WITH HMRC JUST 2 WEEKS BEFORE DEADLINE

On 19 August, City AM reported that only a small proportion of those who own non-taxable trusts have registered them with HMRC Trust Registration Service (TRS), just weeks before the deadline on 1 September.

https://www.cityam.com/less-than-62000-of-uks-one-million-trusts-registered-with-hmrc-just-two-weeks-before-deadline/

US: NEW LAW REQUIRES MUSEUMS TO DISPLAY INFORMATION ABOUT NAZI ART LOOTING

On 18 August, an article from Sullivan and Worcester reported that the significance of this new rule is clear: New York is the centre of the art world, and its museums hold a unique place of prominence.  It warns of some unintended consequences may follow.  It says that the new law adopts important concepts that guide ethical behaviour, but in practice it remains to be seen whether the effect will come and go with the politicians’ announcements.

https://www.jdsupra.com/legalnews/new-law-requires-museums-in-new-york-to-2092990/

CHANGE TO PROCEDURE IN ENGLISH COURT COULD HELP VICTIMS OF CRYPTO FRAUD

On 19 August, an article from Out-Law says that cryptocurrency fraud claims have increased in volume significantly over the last 12 to 18 months, but procedural and jurisdictional difficulties leave many victims debating whether to pursue civil claims in England and Wales.  It reports on a new jurisdictional gateway that will be incorporated into the Civil Procedure Rules.

https://www.pinsentmasons.com/out-law/analysis/change-to-procedure-in-english-court-could-help-victims-of-crypto-fraud

UK: FCA CALLS ON VICTIMS OF RICHARD FAITHFULL TO COME FORWARD AHEAD OF CONFISCATION HEARING

On 19 August, a release on Mondo Visione reported that the Financial Conduct Authority has called on victims of Richard Faithfull to come forward by 12 September in order to ensure they be part of any claim for compensation.  The FCA is asking anyone who made payments to a number of bank accounts between 1 June 2017 and 1 August 2018 to contact it.

https://mondovisione.com/media-and-resources/news/uk-financial-conduct-authority-calls-on-victims-of-richard-faithfull-to-come-for/

RAZZLEKHAN AND DUTCH, BITCOIN’S BONNIE AND CLYDE

In its September issue, Vanity Fair reported on Heather “Razzlekhan” Morgan and Ilya “Dutch” Lichtenstein, whose social media antics disguised an alleged plot to abscond with billions in stolen crypto.  Ilya “Dutch” Lichtenstein, a Russian-born émigré, was an investor and part-time mentalist magician, and his wife, Heather “Razzlekhan” Morgan, who was from the US, was an entrepreneur, journalist, and rapper.

https://www.vanityfair.com/news/2022/08/the-ballad-of-razzlekhan-and-dutch-bitcoins-bonnie-and-clyde

CORRUPT POLITICIANS, MONEY LAUNDERING DRIVE RED-HOT BAGHDAD PROPERTY MARKET

On 19 August, The Media Line reported that real estate sales in Baghdad, are booming, especially in high-end areas, with prices in the Iraqi capital, exceeding those in several Arab and European capitals.  Experts attribute this phenomenon to money laundering operations and efforts by corrupt officials to keep their wealth in assets instead of banks.

https://themedialine.org/top-stories/corrupt-politicians-money-laundering-drive-red-hot-baghdad-property-market/

https://www.linkedin.com/posts/baptisteforestierlinkcy_bankingindustry-money-moneylaundering-activity-6966299421785387008-hxKz

https://www.linkedin.com/posts/nicolaspinto1_innovation-fintech-banking-activity-6966280122366599168-0EhX

BASEL COMMITTEE NEWSLETTER ADDRESSES CREDIT RISK IN REAL ESTATE AND LEVERAGED LENDING

On 5 August, the ABA Banking Journal reported that the Basel Committee on Banking Supervision has issued a newsletter focusing on credit risk, which has risen in recent months due to inflation and the COVID-19 pandemic.  It says that the newsletter also noted stresses in leveraged loan and collateralised loan obligations markets, and that “there is an increasing bifurcation between stronger and weaker credits, with the latter likely to struggle to service debt or refinance given higher interest rates and wider credit spreads”.

https://bankingjournal.aba.com/2022/08/basel-committee-newsletter-addresses-credit-risk-in-real-estate-leveraged-lending/

The newsletter is at –

https://www.bis.org/publ/bcbs_nl29.htm

THE WORLD’S MANUFACTURING SUPERPOWERS

On 19 August, Statista published a 1 minute 11 seconds video showing so-called racing bars that demonstrate how the league table of leading exporters has varied over the years 1990-2020.

https://www.statista.com/chart/28031/manufacturing-racing-bars/

UK: SAUDI SPYWARE CLAIM GOES AHEAD AS JUDGE DISMISSES SOVEREIGNTY IMMUNITY LOOPHOLE

On 19 August, Joshua Rosenberg in his blog reported that in a case involving a Saudi human rights activist and satirist who has lived in England since 2003 and was granted asylum in 2018.  He is seeking damages for personal injury. The Saudi government asked the court to throw out the claim on the basis that, as a state, it is immune from the jurisdiction of the UK courts.  The case revolves around NSO Group Pegasus spyware having been installed on his mobile phone.

https://rozenberg.substack.com/p/saudi-spyware-claim-goes-ahead

https://www.statista.com/chart/28026/latin-american-coal-soil-and-fertilizer-prices/

5 AML COMPLIANCE LESSONS FROM NEW YORK’S ACTION AGAINST ROBINHOOD CRYPTO

On 19 August, an article from Thomson Reuters follows an announcement that New York State’s financial regulator had fined the crypto arm of Robinhood Markets $30 million, largely due to alleged violations of AML regulations, and it highlights key compliance considerations, according to an industry expert.

https://www.thomsonreuters.com/en-us/posts/investigation-fraud-and-risk/crypto-aml-compliance-robinhood/

With an updated version due shortly, it seems, this case digest from the UN Office of Drugs and Crime contains an analysis of cases of cyber organised crime. On the basis of more than 100 cases from more than 20 jurisdictions, observations are made about the ways in which cyber organised crime is identified in case law and how this illicit activity is investigated, prosecuted and adjudicated across jurisdictions. The case digest examines the structure and organisation of cyber organised criminal groups, tools used by perpetrators of cyber organised crime, types of cyber organised crime and procedural issues relating to the investigation, prosecution and adjudication of cyber organised crime cases. It contains summaries of relevant judicial proceedings concerning cyber organised crime, organised according to theme. The ultimate goals of the digest are to identify cases involving cyber organised crime and the manner in which such crime has been investigated, prosecuted and adjudicated in different areas of the world.  The digest concludes by identifying challenges to investigating, prosecuting and adjudicating cases involving cyber organised crime, as well as the lessons learned for criminal justice professionals, including some of the challenging aspects of criminal justice responses to such crime.

https://www.unodc.org/documents/organized-crime/tools_and_publications/21-05344_eBook_rev.pdf

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OFAC: COUNTER NARCOTICS AND  TRANSNATIONAL CRIMINAL ORGANISATIONS DESIGNATIONS REMOVED

On 19 August, OFAC announced that a number of individuals and entities have been removed from its sanctions lists.

https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220819

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OFAC: RUSSIA SANCTIONS – 2 GENERAL LICENSES

On 19 August, OFAC issued 2 General Licenses – 38A authorising transactions related to pension payments; and 50 authorising the closing of individual accounts at financial institutions blocked pursuant to Executive Order 14024 re accounts and processing of transactions involving certain foreign financial institutions.

https://home.treasury.gov/system/files/126/russia_gl50.pdf

https://home.treasury.gov/system/files/126/russia_gl38a.pdf

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US: HOW THE NEW SAR PILOT MAY AID IN THE FINANCIAL CRIME FIGHT INTERNATIONALLY

On 11 August, the American Bankers Association reported on FinCEN’s international SAR exchange proposal which would allow US banks to share suspicious activity reports with branches, subsidiaries, and affiliates located in foreign countries, excluding those considered a state sponsor of terrorism. Previously, the Bank Secrecy Act restricted this cross-border exchange of information as international units of US banks were branded as foreign banks.

https://bankingjournal.aba.com/2022/08/how-the-new-sar-pilot-may-aid-in-the-financial-crime-fight-internationally/

See also –

https://bankingjournal.aba.com/2022/01/fincen-proposes-sar-information-sharing-pilot-program/

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VENEZUELAN AIRLINE COLLABORATING WITH MAHAN AIR OF IRAN HIT BY US COMMERCE AND JUSTICE DEPARTMENT ACTIONS

On 17 August, Kharon reported on the position of Venezuela-based cargo airline Empresa de Transporte Aéreocargo del Sur, S.A. (EMTRASUR), following the transfer of a US-origin Boeing 747 Jumbo Jet from the sanctioned Iranian airline Mahan Air to EMTRASUR in violation of US export controls, as well as EMTRASUR’s export control violations related to flying the aircraft between Venezuela, Iran, and Russia.

https://brief.kharon.com/updates/venezuelan-airline-collaborating-with-iran-s-sanctioned-mahan-air-hit-by-commerce-and-justice-department-actions

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PANAMA AND ITS WARTIME DEFENCES – A PARTIAL INTRODUCTION

PANAMA AND ITS DEFENCES – A PARTIAL INTRODUCTION

In the late 1930s, as international tensions increased and more attention was paid to the defences of the Panama Canal Zone, it became obvious that they were inadequate and required urgent improvement.  Among the many problems was that the coastal artillery, designed to keep attacking vessels at bay, mostly dated from World War 1 and was vulnerable 9or even unprotected) from air attack, there was a lack of effective harbour nets and booms, and both the equipment and disposition of the air element of the defences was much less than optimum.

In the 1930s, the strength of the existing defences of Panama, Hawaii, and Alaska varied, but the Canal Zone had possibly the strongest defences any of these three US outposts[1].  However, the defences of both Hawaii and the Panama Canal, seemingly substantial, had mostly been designed and built in the days before the aeroplane became an important weapon and, for many years, it had been apparent that the Hawaiian Islands and the Canal were more vulnerable to air attack than to naval bombardment[2].

As early as 1924, in his annual report, the Secretary of War at the time had stated that the defences at the Canal and on Oahu in Hawaii were wholly inadequate due to an insufficient number of personnel and a lack of ammunition storage.[3]

However, at the end of Fiscal Year 1938[4], the Secretary of War, in a report to the President, stated that, “We must greatly augment our air forces and our antiaircraft artillery installations in the Panama Canal Zone.  The Panama Canal must be made impregnable”.[5]

The original defences of the Canal, designed and installed during World War 1, were intended to protect against a naval attack and/or an associated landing of troops from the sea[6].  This included the heavy guns of the Coastal Artillery at the Atlantic and Pacific ends of the Canal[7] and a Mobile Force of troops with light artillery for close-in defence and to counter a landing. 

The Harbor Defense Command in the Canal Zone was part of the US Army Coastal Artillery Corps, and had been established in 1925[8].  It controlled the forts, inshore and harbour minefields and other coastal defences.  In addition to the Continental US, there were such Commands in Hawaii, Puerto Rico, the Philippines, as well as in the Canal Zone.  After the 1940 Destroyers for Bases Agreement with the UK, further overseas Commands would be established in Newfoundland, Bermuda and Trinidad, continuing until disestablished in 1946.  Like the Coast Artillery Corps itself, the remaining Harbor Defense Commands would be disestablished in 1950.

Pre-war defences for the Canal Zone mirrored that generally applied to harbour defences in the US, which were intended to have three purposes –

  • To protect the defended area against invasion and capture;
  • To protect the area from naval bombardment, and shipping from submarine or surface torpedo attack; and
  • To cover the seaward approaches sufficiently far out to enable the Navy to emerge and meet an attack.

Primary responsibility for the defence of the Canal lay with the US Army, and its local geographical command known as the Panama Canal Department[9].  This Department was responsible for the defence of the Canal Zone – including the land areas, coastal defences, harbour, and air and sea defences within medium bomber range (the distance to which its bomber force could reach).  It was also responsible for the laying, maintaining, and clearing of harbour defence minefields that were to be placed at the Canal entrance in event of a war – being separate and different from sea mines that might be laid in the open sea by the Navy.  In defending against landings at either end of the Canal, it was meant to coordinate with forces of the US Navy.  In January 1934, the Panama Canal Department consisted of 419 officers and 8,884 enlisted men.  This manpower level was considered at the time to be too low, and by 1936 enlisted strength had been increased to 12,990[10].  By September 1939, numbers had not significantly increased; but this figure grew by 1 January 1940 to 19,500, and 40,000 by December 1941[11]

As they had evolved, the defences of the Canal can most easily be seen as being divided into –

  • Defence from attack from the sea – such as from shelling, torpedo attack on the lock gates or use of blockships;
  • Defence from air attack – from seaborne aircraft or aircraft based in neighbouring states (long-range bombing from hostile Axis countries being impossible due to the distances involved – at least in 1939, and in fact for the entirety of the war);
  • Defence from ground attack – from forces landed by sea (or possibly by air) in the Canal Zone or the surrounding Republic of Panama[12];
  • Defence against sabotage – by saboteurs attacking vulnerable assets (such as lock gates, power stations, and the dams on the rivers that fed the Canal) or by blocking the locks with sunken vessels; and
  • The struggle against German U-boats in the Caribbean and the approaches to the Canal (fortunately, Japanese submarines did not prove a threat on the Pacific approaches and Italian boats operated in the Atlantic but did not enter into the east Caribbean).

According to a joint Army/Navy plan drawn up in 1935, defensive roles were divided between Army, Navy, and the Panama Canal Administration as follows –

  • Army – (including the US Army Air Corps) to defend the Canal from sabotage and hostile attacks;
  • Navy – to patrol the coastal zone and control and protect shipping therein; and
  • Panama Canal Administration – to protect, operate and maintain the Canal, its adjuncts and appurtenances to ensure continuous service at the required levels[13].

The new strategies for protection of the Canal developed in the 1930s envisaged a three-layer defensive arrangement –

  1. An extended defensive line to intercept ships and aircraft before they reached and/or were able to threaten the Canal;
  2. A “close-in line of resistance” to prevent landings on the coasts; and
  3. Local defences, including delaying positions for a final defensive action should the first two defence layers be breached[14].

The Army had the responsibility of providing land-based defences (including anti-aircraft defences), with the Navy tasked with offshore defence, providing armed guards for ships in transit through the Canal (although initially it would be Army personnel that was used for this task, with US Marines only taking over the role in 1942) and maintaining harbour patrols at either end of the Canal.

During the 1930s, in view of Japan’s growing power and the poor state of US defences and armaments, and with the independence of the Philippines scheduled for 1946, the War Department General Staff concluded that the US should not attempt to hold an attack in the western Pacific.  Alaska, Hawaii, and Panama, as a “strategic triangle”, would instead form the main line of defence, and this formed of the latest version of its War Plan ORANGE in 1938[15].  In pre-war planning, while the US Navy was primarily concerned about defending the outlying US territories, the Army remained focused on defending a zone encompassing the Alaska-Oahu-Panama triangle.[16]  Enemy forces could be expected to make raids on Hawaii, Alaska, and the West Coast of the US, and it was feared that the Panama Canal might be wrecked by sabotage or by naval and air raids[17].

In October 1938, following the Munich crisis, President Roosevelt announced that he would spend another $300 million on armaments and told reporters that he would probably ask Congress for $500 million.  In fact, three months later, he asked Congress for $552 million for defence expenditure to prepare the country for possible war.  Part of the plans included expanding defences and fortifications in the Pacific and the Caribbean (including in the Canal Zone).[18]

THE BIG GUNS

Despite the fact that, for the most part, coastal defences would become something of an irrelevance during World War 2[19], between the wars they remained seen as a key and a widely-supported Army role.  However, it was recognised that they had to be supported with defences against air attack and against ground forces landed at unfortified places. 

In the Bay of Panama, on the Pacific coast, some of the guns would be installed on what should be a continuing reminder to locals and visitors alike of the former defences installed by the US to guard the Canal – the Amador Causeway.  This stretches out some 1.9 miles (3 km) into the Pacific Ocean, away from the noise and pollution of Panama City.  In the former island of Perico, now home to a small marina and a research centre of the Smithsonian Institute, one can even see the remains of the tracks used by a 14-inch (355 mm) railway gun, and on the small hill above what used to be another, smaller gun emplacement.

During the construction of the Canal, a huge amount of waste material (particularly from the Culebra Cut[20]) was used the create a breakwater that eventually linked the mainland to one of the small offshore islands, Naos, with work completed in 1912.  This site was named Fort Amador[21] and Fort Grant[22].  In due course, this causeway was extended from Naos to further small islets, Culebra and Perico, ending in the island of Flamenco[23].  It eventually covered over 344 acres (139.2 hectares) and carried not only artillery[24] (chiefly in Fort Grant, which officially also encompassed two slightly distant and unconnected islands, the largest of which was Taboga), but other facilities, including a large tank farm.  On Flamenco alone, there were no less than four batteries[25]

The Causeway effectively guarded the Pacific entrance to the Canal, and any vessel approaching the entrance would be exposed to fire from its batteries (as well as those on the opposite shore and on Taboga – it and its smaller sister, Taboguilla, having been acquired by the US Army for this purpose) for a considerable time before reaching the start of the Canal.

Construction of gun batteries at Fort Sherman and Fort Randolph at the Atlantic end of the Canal, and at Fort Grant and Fort Amador, had begun as early as 1913[26], with additional batteries for coastal defence added in the late 1920s[27], such as at Fort DeLessups on the Atlantic side and Fort Kobbe, across the water from the Causeway, at the other end.   Naval bases were also established at Coco Solo near the city of Colón at the Atlantic end of the Canal, and part of the Fort Grant/Fort Amador installations at the Pacific end were set aside for naval use[28].

As said, the defences put in place to protect the Canal during World War 1 were chiefly to protect it from a naval attack – Germany being the only realistic enemy (and given that the bulk of the Imperial German Navy ended up being bottled up in Kiel for most of the war, perhaps proving not to be a very realistic one[29]).  They were originally authorised in 1911, at a cost then of $14.1 million, which included the installation of submarine mines.  By 1917, the defences and the troop levels reached their peak for World War 1.  However, some augmentation of the defences continued postwar.  For example, Fort Randolph, a coastal artillery fort on Margarita Island at the Caribbean end of the Canal, was only completed in April 1920, being then equipped with 14-inch calibre (355 mm) M1920 railway guns.

While there were some replacements, and some improved weapons, received following World War 1, between 1929 and 1939 many of the large guns were placed in caretaker status due to funding shortages, only being restored to operational capability from 1939.

However, two 14-inch (355 mm) railway guns were added to the defences between the wars, with these being considered to be useful due to their relative mobility using the Panama Railroad that ran across the isthmus.  Received in 1928, these were still in place in 1941 (including, as already noted, for use on the Causeway).

In 1939, there were 11 coastal gun batteries at the Atlantic end of the Canal, and 12 at the Pacific.[30]  However, as the war progressed and the perceived danger of air attack became the primary concern, the heavy mortar batteries dating from World War 1, which were virtually defenceless against air attack, were stripped and the mortars removed in 1943[31].  Even the large guns – the 16-inch and 14-inch coastal artillery – were to be used rarely, even for practice, with the last such firing taking place in 1944 and, following this, they remained unmanned and were finally removed between 1946 and 1948.

THE ARMY

A factor which influenced the defence arrangements, at least until the eve of World War 2, was the difference in terrain between the Atlantic (Caribbean) and Pacific coasts.  The Pacific side of the Canal was geologically different from the Caribbean side and was seen as needing different solutions to the same problems[32].  The possibility of hostile forces establishing a beachhead and moving overland to the Canal was not entirely discounted, but the absence of suitable landing places on the Caribbean side, and the thick jungle of the Pacific lowlands, were counted on to discourage any such attack, and the Army disposed its forces accordingly[33].

Another factor to be borne in mind when considering the status of the defences of the Canal Zone at the outbreak of World War 2 was the US policy of isolation and non-involvement following World War 1, and the effect this had on the funding and size of the Army.  Not only had this been Government policy, but there was a strong popular feeling against foreign entanglements, with many people feeling that they had been duped into participating in World War 1. 

The US Government worked on the assumption that war could be avoided and/or that the US Navy would keep any would-be foe at bay.  Following World War 1, the Army was initially reduced to about 19,000 officers and 205,000 enlisted men, being intended as a force which was to be able to defend the Continental US, its overseas territories and possessions.   However, in January 1921, Congress further reduced the Army’s strength to 175,000, and a year later it limited the regular Army to just 12,000 commissioned officers and 125,000 enlisted men – this being not much larger than the army that the defeated Germany was allowed under the Versailles Treaty.  The size of the US Army was to remain at about the same level until 1936, and the budget for the War Department was fixed after the early 1920s and until then at around $300 million per year. 

In the 1920s, US defence plans had not been aggressive in any sense (if one leaves to one side interventions in Central America) and, aside from maintaining garrisons in its overseas possessions — notably in the Philippines, Hawaii, and the Canal Zone — the Army’s responsibility was limited to the defence of Continental US.  For this task the Army leadership considered that it needed a force considered large enough to administer, organise and train a civilian reserve, meet minor emergencies, and absorb the first shock of any hostilities[34].  The National Defense Act 1920 specified that the Army was to have forces adequate to garrison its overseas outposts (including in China) and possessions, as well as providing enough for 11 full-strength divisions at home ready for homeland defence or prompt deployment to overseas trouble spots.  A large and well-trained force of National Guard and reserve divisions was expected to be available to meet needs for a large-scale war.  However, Congress and successive Administrations refused to provide the resources to put these plans into practice.

As a result, in the interwar years, there were just two understrength divisions overseas, with garrisons in the Philippines and Hawaii, and two artillery regiments in the Canal Zone.  There were also two half-strength divisions on the Mexican border.  After these basic requirements, and other commitments and functions, were met, the remaining troop strength would have been sufficient only for a single full-strength division, plus some additional ancillary units.  Consequently, each of the nine divisional structures comprising this residual force had on average little more than the strength equivalent to a battalion, and were spread across the US, devoting most of their efforts to supporting and training the National Guard. 

The foregoing meant that, allied with the lack of funds for transportation, no one in the Army, except for the overseas garrisons and frontier forces, received any training or field experience above the small-unit level.  Thus, the reality was that there was no possibility that the Army of the 1930s could be prepared for a serious war, whether small or large.

It was not all bad news, however, and there were a few areas in which important efforts did take place between the wars, and these included coastal defence, what became known as radar, and in communications intelligence[35], all of which would a role in the Panama’s part in World War 2. 

The Mobile Force in the Canal Zone was activated on 16 February 1940 and, according to the new doctrine, the plan to defend the Canal Zone involved using these troops as part of a mobile defence in depth beginning at the beaches, and not preparing and holding static defence positions.  The Atlantic side was considered the least likely invasion route because the few landing areas there were too small to allow the discharge of numerous forces simultaneously[36].

THE NAVY

While the US Navy did relatively better from the defence budget between the wars, naval expansion was also restricted, in large part by agreements made in the Washington Naval Conference 1921-22 and the Kellogg–Briand Pact of 1928.  The latter outlawed the use of war as a means of policy and gave the US a clear rationale for limiting its armed forces.  Until the mid-1930s, unlike the Army, the Navy did increase in size, but only within the terms of international agreements.

By the 1930s, the Army had recognised the inadequacy of the harbour defences in the Canal Zone, with the existing gun batteries having little or no protection against air attack, and with many capable of being outranged by more modern naval armament.  As early as 1923, the War Department had determined that either a larger naval fleet or a much larger number of aircraft would provide better protection, but the cheapest option (and hence the one that was chosen) continued to be a reliance on coastal artillery and submarine mines (as explained, the latter also controlled by the Army’s Harbor Defense Command).

As we have seen, the US Navy was seen before World War 2 as the mainstay of the country’s defence (much in the same way as the Royal Navy had been seen in Britain), but the US never built up its force even to the naval limits permitted under the Washington agreements. 

Then, in 1934, funding was received in the form of the National Industrial Recovery Act (part of the New Deal of the Roosevelt Administration[37], primarily aimed at increasing productivity and job creation in US industry, with bolstering the country’s defences rather a secondary justification).  This provided the Navy with $237 million for warship construction.  As a consequence, the Navy ordered 20 destroyers, four submarines, four light cruisers and two aircraft carriers.

Further improvements followed the Vinson–Trammel Act of 1934 which allowed for the construction of 102 new warships over the following eight years, but still keeping the US within the terms of the Washington Agreements (which, of course, the German and Japanese governments did not faithfully adhere to).  However, the Act ensured that as US ships became obsolete, they were replaced.  Thus, by 1937, the US Navy was to have aircraft carriers, cruisers, destroyers and submarines all under construction, and by 1939 it possessed 15 battleships.

However, as of 1939, few of the Navy’s assets were actually based in the Canal Zone.  Even by December 1941, its resources in the Canal area consisted of only two old destroyers and a gunboat, plus six older submarines, three converted yachts and five subchasers for patrol and escort duties, a minesweeper, and 12 patrol flying boats with their tender vessel. 

These resources were assigned to the 15th Naval District, headquartered at Balboa, which had responsibility for “the waters adjacent to the Canal Zone exclusive of the area between the inner limits of the defensive sea areas established at the Atlantic Entrance and the Pacific Entrance of the Panama Canal”.

In 1939, in the Canal Zone, there were several Naval shore establishments, some of which were directly linked to defence of the Canal and Canal Zone.  The Navy maintained a Naval Air Station for patrol aircraft and a submarine base at Coco Solo on the Atlantic end of the Canal[38] – the site having been originally established as a Naval Air Station for flying-boats in 1918[39].

A review by the Hepburn Board in 1938[40] had recommended an increase in the air facilities in the Canal Zone sufficient to accommodate no less than seven squadrons of patrol aircraft, with a supporting establishment capable of complete engine overhaul, and the establishment of a further naval station at Balboa, on the Pacific end of the Canal, to support submarines, destroyers, and smaller craft.  Congress approved the programme as recommended in May 1939, and partial financing was provided in the 1940 Appropriation Bill.  Development of the bases recommended by the Hepburn Board began immediately, and early contracts were awarded in June and July for work in the Canal Zone[41].

What naval forces were available were intended to protect the Panama Sea Frontier.  This was a patrol and threat area covered both Pacific and Caribbean regions.  It stretched from the Mexico/Guatemala border out to the Galapagos Islands and down to a point at 5° of latitude on the coast of South America.  On the other side, it stretched from the Mexico/British Honduras border to Punta de Gallinas in Colombia on the north coast of South America, and around 90 miles (144.8 km) west of Aruba.  In doing so, the Panama Sea Frontier encompassed the coastlines of British Honduras, Guatemala, Honduras, Nicaragua, Costa Rica, Panama and Colombia.

The Bureau of Ordnance at the Navy Department was aware of the inadequacy of the nets and booms defences used during World War 1 to protect US harbours, but it was not until 1940 that funds were made available to improve such defences, with 10 harbours to receive nets, including Balboa in the Canal Zone, and with the Chief of the Ordnance Bureau estimating that it would two to three years to obtain the necessary materials and install the defences. In December 1940 , the Chief of Naval Operations (CNO) of the US Navy ordered the laying and tending of a net and boom defence at Cristobal, to prevent the enemy from entering the Atlantic end of the canal using submarine or surface craft [42].

Early in 1940, the General Board of the Navy and the Army-Navy Joint Board had studied the subject of the defence of the Pacific approaches to the Canal and reached the conclusion that preparations must be made for the operation of constant air patrols over a wide area to the west of Panama.  It recommended that patrol squadrons of seaplanes, supported partly by tenders and partly by shore installations, be based near Guayaquil on the Ecuadorian coast, in the Gulf of Fonseca in Nicaragua, and in the Galapagos Islands, with the latter as the key installations.  They were to be fortified by both the Army and the Navy, under a programme directed by Army engineers[43].  Such “advance bases” were to be a vital element of the Canal’s defence structure during the coming war.

THE AIR FORCE

Until 1947, the “Air Force” was a part of the US Army, as the US Army Air Corps[44] (USAAC) until 1941, and the US Army Air Force (USAAF) until 1947.  As with the rest of the Army, it had suffered from limited budgets, and hence limited numbers of aircraft and men, during the period between the wars.  In the Canal Zone, it also suffered from a limited number of suitable airfields, with many that the rainy season (which was most of the year) would make difficult to use (or useable)[45]

In 1929, Summer manoeuvres in the Canal Zone demonstrated the superiority of a carrier attack force over land-based defences, and were (from the viewpoint of the Navy) a great success.  Despite the defenders knowing the day of the planned mock attack and having as many aircraft as the attacking fleet, the “enemy” was able to come within 150 miles of the Pacific end of the Canal before launching bombers in the pre-dawn darkness from the carrier USS Saratoga and carrying out a successful simulated attack. 

In 1939, a study by the Army and maintenance engineers considered how vulnerable the Canal Zone would be to air attack, how much damage could be done by high-explosive bombs of various sizes, and how large an enemy force would be required to put the Canal out of action.  A replica of one level of the Miraflores Locks was built at Rio Hato in the Republic, and this was attacked by aircraft using bombs of different sizes from different heights, with aircraft making attack runs from 4,000 to 15,000 feet (1,220 to 4,500 metres)[46].  This exercise concluded that installations were vulnerable, that a relatively small force was required (well within the capabilities of several foreign powers), and the best protection was an adequate air defence.  The outcome was forwarded to the War Department in March 1939, with the commander of the resident 19th Wing urging a reorganisation of the air defences.[47]

As the budget for the armed services was increased from 1935, it having been belatedly recognised felt that the existing forces would find it difficult to defend the US as a result of the past years of insufficient investment, the USAAC benefited and it would have around 1,600 aircraft by the late 1930s.  However, many of these were, or would prove to be (including in the light of combat experience in Europe), obsolete or obsolescent, and even some of the newer types, particularly the fighters (the Curtiss P-36 and P-40, for example, which were among the first modern types deployed to Panama) being considered less capable than the best British, German and Japanese types.

Ray Todd

Panamá City,

Republic of Panamá

18 August 2022


[1]  https://history.army.mil/html/books/010/10-6/CMH_Pub_10-6.pdf

[2]  https://history.army.mil/html/books/010/10-6/CMH_Pub_10-6.pdf

[3]  US Global Defense Posture, 1783–2011 by Stacie L Pettyjohn (RAND Corporation, 2012): https://www.jstor.org/stable/10.7249/j.ctt24hrv8.15

[4]  The US Government “fiscal year” runs from 1 October of one calendar year through until 30 September of the next.

[5]  Air Defense of the Panama Canal, 1 January 1939 – 7 December 1941 (Army Air Forces Historical Office), January 1946: https://www.afhra.af.mil/Portals/16/documents/Studies/1-50/AFD-090602-096.pdf

[6]  The original defences were drawn up by the Panama Fortifications Board, itself set up by an Army-Navy Joint Board, which made its recommendations in 1910 and proposed a total of 42 large-calibre guns and mortars manned by 12 coastal artillery companies.

[7]  The coastal artillery was manned by the US Army Coast Artillery Corps, the Army Corps responsible for coastal, harbour and anti-aircraft defences from 1901 to 1950.

[8]  This was in succession to predecessor organisations dating from 1895, with their immediate predecessors being the Coast Defense Commands, which dated from just before World War 1.

[9]  “Department” was an obsolete term within the Army, having been mostly used prior to World War 1.  While, in 1920, most Departments were redesignated as Corps Areas, those in Hawaii, the Philippines and the Canal Zone continued to use the old name.  The Panama Canal Department existed from 1917 until disestablished in 1947.

[10]  https://weaponsandwarfare.com/2019/11/18/panama-canal-zone-defences-i/

[11]  The peak was reached in November 1942, with 68,000 men (although the War Department had announced a curtailing of assignments to the Panama Canal Department in July 1942, setting a cieling for ground forces of 47,000 – despite the Commanding General of the Caribbean defense Command expressing concerns that this reduced troop levels below that required to guarantee the safety of the sector). The new cieling made units available for transfer out, to more active theatres.

[12]  The doctrine for defence against landings was transformed with the wide acceptance by the Army of a 1920 proposal of a flexible mobile defence-in-depth doctrine.  In Hawaii in particular, where the threat of Japanese attempts to seize the island of Oahu could not be altogether dismissed, very effective invasion defences were developed.  The same idea was adopted in the Canal Zone.  However, in the Philippines, a lack of forces to defend the many stretches of practicable landing areas on Luzon made effective defence using this concept impossible.

[13]  https://digitalcommons.fiu.edu/cgi/viewcontent.cgi?article=3672&context=etd

[14]  https://apps.dtic.mil/dtic/tr/fulltext/u2/a388262.pdf

[15]  https://history.army.mil/html/books/010/10-6/CMH_Pub_10-6.pdf  In 1939, the five so-called Rainbow plans officially replaced the earlier war plans of the 1920s and 1930s, including Plan Orange, which had anticipated war with Japan.  Rainbow 5, which was destined to be the basis for US strategy, assumed that the US was allied with Britain and France and provided for offensive operations by US forces in Europe, Africa, or both: https://archive.org/details/eagleagainstsuna0000spec/page/59/mode/2up).

[16]  US Global Defense Posture, 1783–2011 by Stacie L Pettyjohn (RAND Corporation, 2012): https://www.jstor.org/stable/10.7249/j.ctt24hrv8.15

[17]  The Corps of Engineers: The War Against Japan by Karl C. Dod (Center of Military History, US Army, Washington DC), 1987: https://history.army.mil/html/books/010/10-6/CMH_Pub_10-6.pdf

[18]  https://www.mslucohistory.com/uploads/1/0/9/4/109471507/hemispheric_reactions_chapter.pdf

[19]  For example, those in the Philippines and Normandy did not prevent defeat, and famously those in Singapore could not prevent the fall of that colony.

[20]  The Culebra Cut (called the Gaillard Cut from 1915 to 2000, in honour of a US officer who had led the excavation, and who died a month after the breakthrough there in 1913), is an artificial valley that cuts through the Continental Divide and it was one of the great engineering feats of its time.  Culebra is the name for the mountain ridge it cuts through and was also originally applied to the cut itself.  After the Canal was handed over to Panama in 1999, the name was changed back to Culebra (Corte Culebra in Spanish).

[21]  Named for the first President of Panama, Manuel Amador Guerrero.

[22]  Named as US President Grant, who had ended his transit of the isthmus there in 1852.

[23]  Later an important radar site, there remains a radar station on Flamenco, adjacent to a marina, cruise liner terminal, shops and restaurants.

[24]  During World War 2, such artillery gradually fell out of use; for example, the Fort Amador batteries became disused (and buried) from 1943.

[25]  Something of which one can still find today, although derelict and overgrown: https://www.panorama2go.com/en/military-fortifications-of-the-isthmus-of-panama/

[26]  President Woodrow Wilson had declared the Canal’s neutrality in 1915, but it is said that political and military pressure compelled him to nevertheless militarise the Zone.  In 1916, when Mexican revolutionary Pancho Villa and his guerrillas “invaded” US territory, troops dispatched to pursue him came from the detachments based in the Canal Zone. Among the officers who were part of the chase were two young lieutenants, Dwight Eisenhower and George Patton.

[27]  On opening in 1914, there was a Panama Canal Guard Force, including a US Marine Corps battalion, an Army infantry regiment and three companies of Coastal Artillery, a total of 797 men, though numbers and composition increased considerably as the war progressed: https://ufdc.ufl.edu/AA00022175/00001/pageturner#page/29

[28]  https://ufdc.ufl.edu/AA00022175/00001/pageturner#page/31

[29]  During the war, commerce raiders (both warships and converted merchantmen) did threaten Allied shipping, as did U-boats, but neither was a realistic significant threat to the Canal, particularly as the US did not enter the war until 1917, by which time such threats had diminished.  A German squadron had been present in the Pacific, and defeated a Royal Navy force in the Battle of Coronel in 1914, only then to be annihilated by a pair of British battlecruisers in a subsequent battle off the Falkland Islands in the South Atlantic later the same year.  That was the last German naval force of any significance to come anywhere near Panama, and again years before the US entry into the war.

[30]  https://apps.dtic.mil/dtic/tr/fulltext/u2/a388262.pdf

[31]  Probably the only US 12-inch mortars to see action were those fired from Corregidor during the Japanese attack on the Philippines in 1942.

[32]  https://digitalcommons.fiu.edu/cgi/viewcontent.cgi?article=3672&context=etd

[33]  https://www.ibiblio.org/hyperwar/USA/USA-WH-Guard/USA-WH-Guard-12.html

[34]  The Army and Its Air Corps Army Policy toward Aviation 1919–1941 by Lt Col. Dr James P Tate, USAF (Ret) Air (University Press Maxwell Air Force Base, Alabama), 1998: https://www.airuniversity.af.edu/Portals/10/AUPress/Books/B_0062_TATE_ARMY_AIR_CORPS.pd

[35]  What we now term COMINT.

[36]  https://en.wikipedia.org/wiki/Panama_Canal_Department

[37]  Aimed at encouraging recovery from the Great Depression.

[38]  Also known as Upham Naval Air Station, as the translation of Coco Solo (“One Coconut”) was apparently seen as unflattering.

[39]  The initial improvements in 1940 included enlarging the submarine and air facilities at Coco Solo.  The site is now part of two large container terminals.

[40]  This Board was established in 1938 and reviewed America’s national defence structure during the deteriorating international situation. The “Hepburn Board Report” was the basis for the massive Navy  Shore Establishment expansion that took place prior to World War 2.  The Report was published in December 1938.

[41]  https://www.ibiblio.org/hyperwar/USN/Building_Bases/bases-18.html

[42]  https://www.navycthistory.com/NSGStationsHistory.txt

[43]  https://www.ibiblio.org/hyperwar/USN/Building_Bases/bases-18.html

[44]  It had originally been the US Army Air Service 1918-26.

[45]  Even the second permanent Army airfield at Albrook Field, which opened in 1932, had, until hard surface runways were laid down in 1939, runways considered unsuitable for all-weather flying. 

[46]  Security and Defense of the Panama Canal 1903-2000 by Charles Morris, Panama Canal Commission: https://original-ufdc.uflib.ufl.edu/AA00047733/00001/6j

[47]  Air Defense of the Panama Canal, 1 January 1939 – 7 December 1941 (Army Air Forces Historical Office), January 1946: https://www.afhra.af.mil/Portals/16/documents/Studies/1-50/AFD-090602-096.pdf