Divesting from Communist China’s Military Act of 2026
- Bill Number
- S. 3640
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 2
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2026-01-14: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- Last Updated
- 2026-02-10T18:16:44Z
AI-Generated Summary
Purpose
The legislation aims to restrict U.S. investments in entities linked to China's military-industrial complex by requiring their automatic inclusion on a Treasury Department sanctions list. This builds on prior executive orders and defense laws to prevent American capital from funding activities that threaten U.S. national security, such as China's military modernization and surveillance technologies.
Key Provisions
- Inclusion on Sanctions List: Within 90 days of the Secretary of Defense identifying an entity as a "Chinese military company" under section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (which defines these as entities owned, controlled, or affiliated with China's military or contributing to its defense industry), the Secretary of the Treasury must add it to the Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List). This list is maintained by the Treasury's Office of Foreign Assets Control.
- Application of Prohibitions: Starting 60 days after addition to the list, restrictions from Executive Order 13959 (as amended by Executive Order 14032) apply to the entity. These prohibit U.S. persons from engaging in certain securities transactions with the entity, such as buying or selling its stocks or related derivatives on U.S. exchanges or over-the-counter markets.
- Divestment Grace Period: U.S. persons (including citizens, permanent residents, U.S.-based entities, and anyone in the U.S.) have one year from the entity's addition to the list to buy or sell its publicly traded securities solely for divestment purposes, allowing time to exit investments without immediate penalties.
- Definitions: Key terms include "publicly traded security" (any stock, bond, or derivative traded on exchanges or over-the-counter in any country) and "U.S. person" (broadly covering Americans and U.S.-based operations).
Significant Changes to Existing Law
- Automates the process by mandating Treasury action based on Defense Department identifications, harmonizing defense procurement bans (from the National Defense Authorization Act for Fiscal Year 2024, which phases out DoD contracts and purchases from these entities by 2027) with financial sanctions.
- Expands the scope of Executive Order 13959's investment restrictions to align with the broader definition of "Chinese military companies" in the 2021 NDAA, closing a gap where identified entities could still access U.S. capital markets before full DoD restrictions take effect.
- Introduces a standardized one-year divestment window, providing more predictability than prior ad-hoc implementations of the executive orders.
Potential Impacts
- Government Agencies: The Department of Defense's identifications will trigger Treasury actions, streamlining inter-agency coordination but increasing Treasury's workload in maintaining the NS-CMIC List. This could enhance enforcement of national security sanctions overall.
- Citizens and Investors: U.S. investors holding securities in affected companies must divest within one year, potentially leading to financial losses from forced sales and market volatility in U.S.-traded Chinese stocks. It limits investment options in certain global markets.
- International Relations: Strengthens U.S. efforts to counter China's military-civil fusion strategy (where private companies support military goals), but may escalate economic tensions with China, prompting retaliatory measures against U.S. firms or broader trade disputes.
Main Stakeholders Affected
- U.S. Government Entities: Department of the Treasury (enforces list and sanctions), Department of Defense (identifies companies), and congressional committees (Senate Banking, Housing, and Urban Affairs; House Financial Services) for oversight.
- U.S. Investors and Financial Institutions: Individuals, pension funds, and brokers dealing in securities, who face divestment requirements and compliance costs.
- Chinese Entities: Companies identified as military-linked (e.g., those affiliated with the People's Liberation Army or state defense agencies), which lose access to U.S. capital markets, hindering their funding and operations.
- Broader Economy: U.S. stock exchanges and international investors indirectly affected by reduced trading in Chinese securities.
Notable Legal, Constitutional, or Political Implications
- Legal: Reinforces executive branch authority under the International Emergency Economic Powers Act (basis for the executive orders) while giving Congress a direct role in mandating sanctions, potentially reducing reliance on presidential discretion. The divestment period balances restrictions with due process for investors, minimizing challenges under property rights laws.
- Constitutional: Aligns with Congress's powers over foreign commerce and national defense (Article I, Section 8), but could face scrutiny if seen as overregulating private investments without sufficient emergency justification.
- Political: Signals bipartisan concern over China as a national security threat (sponsored by senators from both parties), promoting unified U.S. policy across administrations. It may influence future sanctions regimes by setting a precedent for linking defense identifications to financial penalties, though it risks politicizing investment decisions and affecting global market stability.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (3)
Sen. Cruz, Ted [R-TX], Sen. Banks, Jim [R-IN], Sen. Moody, Ashley [R-FL]
Recent Actions
- 2026-01-14: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- 2026-01-14: Introduced in Senate
Bill Versions
- Divesting from Communist China’s Military Act of 2026 — issued 2026-01-14 — PDF (8 pages)