On December 23, 2024, former President Joe Biden signed into law the National Defense Authorization Act for Fiscal Year 2025, which includes a provision prohibiting the Department of Defense (DOD) from contracting with entities that retain outside consultants who also engage in federal lobbying activity on behalf of Chinese military companies operating directly or indirectly within the U.S. This prohibition does not take effect until June 30, 2026.
Details of the Law
The law prohibits the DOD from entering into a contract with a company that is a party to a contract with a “covered lobbyist” (i.e., a person engaged in lobbying activities as defined under the Lobbying Disclosure Act of 1995 (the LDA)), on behalf of an entity determined by the DOD to be a Chinese military company operating directly or indirectly within the U.S. Covered Chinese military companies are identified on a publicly available list, known as the “CMC List,” which is updated annually.
Importantly, this prohibition applies to all “covered lobbyists” retained by a company, even if such lobbyist engages in federal lobbying activities unrelated to defense contracting. This prohibition, based on its plain language, also applies even if a covered lobbyist does not meet the thresholds required to trigger registration under the LDA. Additionally, the prohibition appears to extend to the parent entity and subsidiaries of the company with the covered lobbyist, though this portion of the law contains a drafting error, which may need to be resolved in an amendment or in regulations or guidance issued by the DOD.
Notably, the prohibition includes a safe harbor for companies that make “reasonable inquiries” into their consultants’ lobbying activities and thereafter determine that such consultants do not qualify as covered lobbyists. The secretary of defense is also granted the authority to waive the prohibition, provided they notify Congress.
Implications
Before the law’s effective date, companies doing or seeking business with the DOD should confirm that their current and prospective consultants neither engage, nor plan to engage, in federal lobbying activities for covered Chinese military companies. Companies may need to coordinate their due diligence with their affiliates, to the extent their affiliates also have outside consultants. Such confirmation should also be included as a representation and warranty in the consulting agreement.
Given that the CMC List is updated annually, companies should ensure that they are consulting the latest version of the list before the prohibition takes effect in June 2026. Moreover, given this prohibition applies to companies with any covered lobbyists, regardless of whether such lobbyists are registered under the Foreign Agents Registration Act (FARA) or the LDA, companies should not merely rely on FARA and LDA filings for this due diligence.
We will continue to monitor the implementation of this law, as well as any potential amendments, as the June 30, 2026, effective date approaches.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.