Greytown (aka San Juan de Nicaragua or San Juan del Norte) was a contested port on the Atlantic Coast of Central America. Nicaragua regarded it as its own former Caribbean outlet, while Britain maintained that it was always part of Mosquitia. In 1852, the protectorate granted self-governing autonomy to the tiny port. It was later bombarded and burned to the ground on July 13, 1854 by the US Navy sloop-of-war USS Cyane. Although this incident was historically minor, it had a major impact on American foreign policy.

The US Secretary of the Navy ordered Cyane's captain, George N. Hollins, to demand reparations from the town’s residents for damaging property and stealing goods from an American-owned local steamboat business called the Accessory Transit Company (ATC). This company ran small steamers across the Nicaraguan Isthmus, picking up passengers at Greytown (sometimes spelled Grey Town) from Atlantic steamers out of US east coast ports and delivering them to Pacific steamers bound for San Francisco. This shortcut — which ran in both directions — eliminated the 10,000 mile, four- or five-month traditional route around South America.

Hollins was also to demand an apology for an insult to the US minister to Nicaragua, Solon Borland, when he visited the town two months earlier. At that time, the American captain of a transit company steamboat that Borland was traveling on had shot and killed a native boatman in cold blood. Borland later prevented the captain’s arrest when he “took a gun from somebody, cocked it, and leveled” it at the Greytown’s marshals. That night, an angry mob confronted Borland over his prevention of the murderer’s arrest and a resident threw a piece of broken bottle at Borland, “slightly wounding him in the face.”

Navy Secretary James Dobbin’s orders to Hollins “hoped that you can affect the purposes of your visit without a resort to violence and destruction of property and loss of life”. But Dobbin did not rule out force of arms. Hollins gave the town 24 hours to meet his reparations demands, mainly $24,000 (an estimated $840,000 in 2024 US dollars). When the small town was unable to satisfy his demands, Hollins bombarded the port with 177 rounds of cannon fire. Then he sent Marines ashore to burn down anything still standing. Because the residents had used those 24 hours to flee into the surrounding woods, no one was killed or injured in the razing.

In the first half of the 19th century, the US had been periodically at odds with Great Britain over their holdings and “interests” in Central America. These included British Honduras (later called Belize), the Bay Islands off Honduras, and Mosquitia. The latter included Greytown and what otherwise would have been the eastern halves of Honduras and Nicaragua. Ostensibly, the British set this up to protect the Miskito, with whom they had been trading for 200 years. “The Mosquito question,” noted one U.S. diplomat, “has been a subject for discussion & negotiation for nearly two centuries. It is now questionable, to whom this insalubrious sweep of Country on the Atlantic belongs; while in view of our policy in regard to Indian tribes [insisting no Western Hemisphere Indians had sovereign rights to the land they occupied] the Protectorate of Mosquitia must be taken, as a shift & subterfuge.”

The British claimed that since the Spanish had never conquered the Indians, their lands had not become part of Honduras and Nicaragua when those states freed themselves from Spanish rule. Later, in 1873, commenting bitterly on how this British claim became a de facto reality, then Secretary of State Hamilton Fish wrote that the 1860 Anglo-Nicaraguan Treaty of Managua “confirmed the grants of land previously made in Mosquito territory. The similar stipulation on this subject in the [1856 Anglo-American] Dallas-Clarendon [projet] Treaty was perhaps the most objectionable of any [in it], as it violated the cardinal rule of all European colonists in America, including Great Britain herself, that the aborigines had no title to the soil which they could confer upon individuals.” This rule, Fish concluded, “has repeatedly been confirmed by judicial decisions, and especially by the Supreme Court of the United States.”

The U.S. had been comfortable dismissing the protectorate as a “subterfuge” until the British seized San Juan del Norte in 1848 and made it part of the protectorate, renaming it Grey Town, after their then-governor of Jamaica, Charles Edward Grey. The British wanted the port as a bargaining chip to prevent the United States from seizing the entire isthmian watercourse. Greytown Harbor and its appurtenances, San Juan del Norte [now Greytown] and Punta Arenas (part of Greytown, a large spit of land across the harbor), were the only possible sites for any water route’s Atlantic terminus.

The recent American acquisitions of Texas and California made the British foreign secretary, Lord Palmerston, fear that the burgeoning young colossus would now turn south. According to American historian Mary Wilhelmine Williams, “The aggressive movement of the United States towards the southwest, accompanied by the talk of ‘manifest destiny,’ had given the British good reason to suspect the Americans of designs upon the territory of the isthmus, and to fear that they might attempt to monopolize the Nicaragua route.” According to British historian Kenneth Bourne, “Neither side … aimed at exclusive control but each feared that this was, in fact, the other’s real intention.”