In 1887, Eiffel became involved with the French effort to construct a canal across the Panama Isthmus.
The French Panama Canal Company, headed by Ferdinand de Lesseps, had been attempting to build a sea-level canal, but came to the realization that this was impractical.
The plan was changed to one using locks, which Eiffel was contracted to design and build.
The locks were on a large scale, most having a change of level of 11 m (36 ft).
Eiffel had been working on the project for little more than a year when the company suspended payments of interest on 14 December 1888, and shortly afterwards was put into liquidation.
Eiffel's reputation was badly damaged when he was implicated in the financial and political scandal which followed.
Although he was simply a contractor, he was charged along with the directors of the project with raising money under false pretenses and misappropriation of funds.
On 9 February 1893 Eiffel was found guilty on the charge of misuse of funds, and was fined 20,000 francs and sentenced to two years in prison, although he was acquitted on appeal.
The later American-built canal used new lock designs (see History of the Panama Canal).

Shortly before the trial Eiffel had announced his intention to resign from the Board of Directors of the Compagnie des Etablissements Eiffel, and did so at a General Meeting held on 14 February, saying "I have absolutely decided to abstain from any participation in any manufacturing business from now on, and so that no one can be misled and to make it most evident that I intend to remain absolutely uninvolved with the management of the establishments which bear my name, I insist that my name should disappear from the name of the company."
 The company changed its name to La Société Constructions Levallois-Perret, with Maurice Koechlin as managing director.
The name was changed to the Anciens Etablissements Eiffel in 1937.
In 1887, Eiffel became involved with the French effort to construct a canal across the Panama Isthmus. The French Panama Canal Company, headed by Ferdinand de Lesseps, had been attempting to build a sea-level canal, but came to the realization that this was impractical. The plan was changed to one using locks, which Eiffel was contracted to design and build. The locks were on a large scale, most having a change of level of 11 m (36 ft). Eiffel had been working on the project for little more than a year when the company suspended payments of interest on 14 December 1888, and shortly afterwards was put into liquidation. Eiffel's reputation was badly damaged when he was implicated in the financial and political scandal which followed. Although he was simply a contractor, he was charged along with the directors of the project with raising money under false pretenses and misappropriation of funds. On 9 February 1893 Eiffel was found guilty on the charge of misuse of funds, and was fined 20,000 francs and sentenced to two years in prison, although he was acquitted on appeal. The later American-built canal used new lock designs (see History of the Panama Canal).
Shortly before the trial Eiffel had announced his intention to resign from the Board of Directors of the Compagnie des Etablissements Eiffel, and did so at a General Meeting held on 14 February, saying "I have absolutely decided to abstain from any participation in any manufacturing business from now on, and so that no one can be misled and to make it most evident that I intend to remain absolutely uninvolved with the management of the establishments which bear my name, I insist that my name should disappear from the name of the company."  The company changed its name to La Société Constructions Levallois-Perret, with Maurice Koechlin as managing director. The name was changed to the Anciens Etablissements Eiffel in 1937.
Gustave Eiffel