During the battle for Nanking in the Sino-Japanese War, the by Japanese warplanes in Chinese waters. The American vessel, neutral in the Chinese-Japanese conflict, was escorting U.S. evacuees and three Standard Oil barges away from Nanking, the war-torn Chinese capital on the Yangtze River. After the Panay was sunk, the Japanese fighters machine-gunned lifeboats and survivors huddling on the shore of the Yangtze. Two U.S. sailors and a civilian passenger were killed and 11 personnel seriously wounded, setting off a major crisis in U.S.-Japanese relations.
Although the Panay‘s position had been reported to the Japanese as required, the neutral vessel was clearly marked, and the day was sunny and clear, the Japanese maintained that the attack was unintentional, and they agreed to pay $2 million in reparations. Two neutral British vessels were also attacked by the Japanese in the final days of the battle for Nanking.
