Lawyers Seeing More Activity, Industry Concern Surrounding 1260H List
The U.S. government appears to be focusing more heavily on adding entities to the Pentagon’s Chinese military company list, and Chinese companies are growing increasingly concerned about being added, lawyers said.
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Both David Plotinsky and Todd Liao, lawyers with Morgan Lewis, said they’re seeing a rise in client work involving the 1260H List, which places government contract restrictions on listed entities. The increased interest in the list is partly because of the Biosecure Act, a bill included in the final draft version of the FY 2026 National Defense Authorization Act, which could prevent certain U.S. government contract-related transactions with biotechnology companies “of concern,” including firms identified on the Defense Department’s 1260H List.
The list has historically been a “name and shame mechanism,” Plotinsky, former acting chief of DOJ’s Foreign Investment Review Section, said during a webinar last week hosted by Morgan Lewis. “It was more reputational than anything else. And for that reason, a lot of companies initially just took the hint and didn't necessarily challenge it.” But he said more companies are now looking to challenge their designation because of the potential upcoming impact of the Biosecure Act.
Plotinsky said the firm has clients “trying to stay off the list” and clients looking to get delisted. “So 1260H is heating up,” he said. “It's been around for a couple of years, but there's now some real teeth behind it, and that's why we're seeing significantly increased client work and client interest in that space.”
Liao, based in Shanghai, said the U.S. government is “certainly ramping up” efforts to add more Chinese companies to the list. He pointed to recent reports that identified several major Chinese companies the Pentagon believes should be on the 1260H List, including Alibaba, Baidu and BYD.
“These companies are not small companies,” Liao said. “These companies have extensive supply relationships and business relationships with U.S.-based companies in a lot of capacities.” He said U.S. executives of multinational firms are asking: “What if these companies all of a sudden came on the list? What happens with my contract?”
He also said there’s a risk of any majority-owned affiliate also being added to the 1260H List, which could have far-reaching impacts on U.S. due diligence efforts because of the “massive organizational structures” of some Chinese firms, which often aren’t transparent.
“How do you know whether your existing or future Chinese business partners or vendors are going to be on the list? And what do you do with them?” he said. “This is a huge issue for a lot of the multinational companies.”
Further complicating compliance with the 1260H List is China’s Anti-Foreign Sanctions Law, Liao said, which Beijing can use to sanction firms that comply with foreign restrictions against Chinese companies, including potentially those imposed by the 1260H List. Although Beijing has so far mostly used its Anti-Foreign Sanctions Law as a symbolic measure to target U.S. politicians or political advocates, Liao said he is “gradually” seeing China use the tool more against “private business communities.”
China earlier this year threatened to use the law against any person or company that complied with May export control guidance from the Bureau of Industry and Security that warned U.S. businesses against using advanced Huawei chips (see 2505210022).
Along with the risk of Beijing imposing its own sanctions through the Anti-Foreign Sanctions Law, Liao said Chinese companies are being empowered by the law to sue foreign firms in Chinese courts.
He pointed to a recent “high-profile” case in which a Chinese shipping company sued a European shipping company for terminating their contract after the EU sanctioned the Chinese firm. The Chinese firm challenged the termination in a Chinese maritime court, Liao said, and the two sides settled.
Although the case wasn’t formally brought under Beijing’s Anti-Foreign Sanctions Law, “certainly the leverage that they had under this law had a huge impact on the willingness of this European company to settle the case and pay a huge sum to compensate for the Chinese foreign parties’ so-called damages,” he said.
If the language in the Biosecure Act becomes law, and a U.S. company needs to terminate a contract with a Chinese firm because of their placement on the 1260H List, the U.S. company may “have to be very careful in how to raise that termination,” Liao said. “Because if they specifically rely on this U.S. law as well as the sanctions, then the Chinese government, as well as the Chinese biotechnology companies, could retaliate.”
Although conflicting Chinese and Western laws isn’t necessarily a new problem, Liao said it’s becoming more challenging to navigate. “How to navigate through that conflict of law situation is increasingly a big headache for many of our clients,” he said.