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Article Highlights:
Given the stakes involved, any organizations that do work for the federal government should be aware of Section 1260H—which was expanded in June 2026—as well as the best strategies for confirming that their supply chains are completely free of any of the Chinese entities sanctioned through that list.
In order to determine their compliance with the NDAA, businesses need to be able to juxtapose Section 1260H alongside their supply chain. In order to do that effectively, companies must have an updated map of their supply chain.
Organizations working to achieve compliance with the NDAA and Section 1260H need to be aware of a tricky caveat. The brand name that a supplier goes by may not be their official legal name in the eyes of the government. Businesses represented on Section 1260H according to their legal name or parent company may go by a different name among their supply chain customers.
Initially introduced with the National Defense Authorization Act of 2021, Section 1260H is a list of Chinese companies believed to be participating in China’s military-civil fusion strategy. For the Department of Defense (also referred to as the Department of War) and the Department of Homeland Security, this makes these entities a clear and present threat to national security.
Because of this threat, the DoD and all government contractors that work with the agency are prohibited from sourcing goods from any of the organizations on Section 1260H. The penalties for noncompliance include not only fines but also debarment—meaning that contractors found to be sourcing from a sanctioned entity under the NDAA may be barred from working with the federal government going forward.
Given the stakes involved, any organizations that do work for the federal government should be aware of Section 1260H—which was expanded in June 2026—as well as the best strategies for confirming that their supply chains are completely free of any of the Chinese entities sanctioned through that list.
How to Check Your Supply Chain for Section 1260H Entities
Adhering to the NDAA and the act’s Section 1260H sanctions list is a categorical imperative for all government contractors. Below, we’ve put together a step-by-step playbook for ensuring that your supply chain isn’t linked to any of those Chinese military companies.
Access the Most Up-to-Date Section 1260H List
The sanctions list was first introduced in 2021 with the implementation of the National Defense Authorization Act. But the law stipulated that the government would need to update the list annually, accounting for new research and information into Chinese companies collaborating with the People’s Republic of China (PRC) and its military.
The sanctions list started with 47 entities in 2021. There are now 188 entities on Section 1260H. Suffice it to say, the impetus is on businesses to reference the most up-to-date version of the list possible. A PDF of the complete list as of June 2026 is available in the Department of War’s press release announcing the most recent expansion.
Map Your Supply Chain
In order to determine their compliance with the NDAA, businesses need to be able to juxtapose Section 1260H alongside their supply chain. In order to do that effectively, companies must have an updated map of their supply chain. For the time being, this can be limited to direct (tier one) suppliers. But as we’ll discuss later, government contractors will soon be held responsible for their entire supply chain, and will be legally obligated to ensure that their sub-tiers are also free of any entities sanctioned under NDAA.
Because of this, adherence to this impending version of Section 1260H will require organizations to have visibility into the second and third tiers of their supply chains. And as we’ve documented in the past, the majority of businesses still struggle to consistently map their supply chains beyond tier one.
Identify All Legal Entity Names
If all this due diligence weren’t enough, organizations working to achieve compliance with the NDAA and Section 1260H also need to be aware of a tricky caveat. The brand name that a supplier goes by may not be their official legal name in the eyes of the government. Businesses represented on Section 1260H according to their legal name or parent company, in other words, may go by a different name among their supply chain customers.
Alas, the onus is on the businesses to confirm that the suppliers they source from are not associated with a different name sanctioned by the U.S. government through Section 1260H. In order to do this, companies should check the parent company, ownership structure, and legal names of all Chinese companies that operate in their supply chain. Then, they can check all those names against the sanctions list. It’s an additional level of due diligence—and a greater commitment of time and resources—but that’s what’s required to overcome the subterfuge that many of these sanctioned Chinese entities deal in.
Cross-Reference Your Suppliers Against Section 1260H
Once a business has carried out all the aforementioned steps, they’re ready to actually check their suppliers against the 188 entities sanctioned through Section 1260H. While obviously critical—and determinative of what a business does next—this may be the most straightforward part of the trade compliance due diligence process.
Document Your Due Diligence Efforts
In order to protect themselves against potential inquiries from the government, companies should make sure that they document their full internal review process. This could mean describing the steps they’ve taken, listing out all the suppliers they reviewed, and/or outlining any additional measures they carried out to address potential compliance risks. If they ever need to contend with a potential compliance violation, this documentation could serve them well.
Section 1260H: Direct vs. Indirect Suppliers
Finally, it’s worth circling back to the question of direct and sub-tier suppliers. As of 2026, government contractors are only responsible for ensuring that they’re not sourcing directly from any companies on the Section 1260H list. One of the 188 entities could theoretically be embedded deeper in their sub-tier, and that would technically not represent a violation of the NDAA.
But that’s going to change in June 2027. Effective at the end of that month, the law will prohibit the government from procuring goods or services that contain anything originally produced or manufactured by entities covered under Section 1260H. In practice, this means that next year, government contractors will be responsible for ridding their full supply chains of sanctioned Chinese entities, rather than merely not sourcing directly from them. There’s still some ambiguity surrounding just how deep contractors will be responsible for going into their sub-tier to confirm compliance, but it’s likely to be tier two or tier three at the least.
Maximize Supply Chain Visibility and Unlock Operational Flexibility
As the past few years have demonstrated, international trade is becoming a new battleground for the world’s most powerful nations. The U.S. government wants to eradicate the most dangerous Chinese companies from its industries’ supply chains, and it’s implementing a battery of laws, sanctions, and other trade restrictions to achieve that objective. And as the upcoming changes to the NDAA Section 1260H demonstrate, those goals will eventually require American businesses to attain greater visibility and control over their sub-tiers.
Businesses that want to stay compliant with U.S. trade law—not to mention the wishes of corporate customers, investors, and other key stakeholders—need to strengthen their supply chain flexibility. This starts with deepening visibility. Supply chain risk management (SCRM) platform Z2 helps businesses map their supply chains, allowing users to see direct and subtier suppliers, fabs, EMS sites, assembly facilities, and other manufacturing locations through detailed visualizations. Z2’s part-to-site mapping serves as a powerful complementary functionality, tracing components and subassemblies to their specific manufacturing sites and showing customers how their parts fit into larger supply chain networks.
Finally, Z2 maintains a large sub-tier intelligence database that gives users access to millions of connections between direct suppliers and sub-tier manufacturers all over the world. The underlying technology powering the database ingests data points from high-credibility sources to identify verified relationships between parts, suppliers, and sub-tier entities. This enables companies to leverage Z2 to gain deeper supply chain insights, pushing their mapping further into their sub-tiers and preparing them for the trade mandates of tomorrow.
To learn more about how Z2 can prepare your business for Section 1260H and other trade restrictions, schedule a free trial with one of our product experts.
