Mandatory Divestment: New Act Forces U.S. Investors to Sell Banned Chinese Stocks Within 180 Days or Face Prison

If you’re a U.S. person—meaning a citizen, green card holder, or even just a company organized here—and you own a slice of certain Chinese companies, this bill is about to make your brokerage account a lot more complicated. The PRC Military and Human Rights Capital Markets Sanctions Act of 2025 aims to cut off capital flow from the U.S. to specific entities tied to the Chinese military or human rights violations. The rule is simple: U.S. persons are banned from buying, selling, or holding any publicly traded stock, derivatives, or investments that give exposure to these banned companies, known as “covered entities.”

The Covered Entity Blacklist

So, who is a “covered entity”? Think of it as a super-blacklist stitched together from multiple existing government watchlists. If a Chinese company is on the Treasury’s Specially Designated Nationals (SDN) list, the Defense Department’s military-linked list (section 1260H(b)), the Commerce Department’s Entity List, or has been sanctioned under the Global Magnitsky Act, it’s in. Even if a company has recently produced goods subject to a Withhold Release Order (WRO) related to forced labor in the last two years, it gets flagged. The President is required to pull all these names together into one single, public list within 90 days of the law passing, ideally including identifiers like CUSIPs to make compliance easier—though good luck keeping up with all those moving parts.

The 180-Day Fire Sale

This isn't just about stopping future investments; it’s about cleaning up what you already own. If you have existing holdings in these companies, you are required to sell them off. If the security was on the initial list published by the President, you get 180 days from the law’s enactment date to completely divest. If a company gets added to the list later (which is guaranteed to happen, since the underlying blacklists are always changing), you get 180 days from the date it was added to sell it. For the average person with a retirement account or a brokerage app, this means you need to be constantly checking the official list. If you miss the deadline, simply holding the security becomes a violation.

The High Cost of Non-Compliance

Here’s where this bill gets serious, especially for busy people who might miss an update. If a U.S. person violates the ban—by buying, selling, or just holding past the deadline—the civil penalties are steep: up to $250,000 or twice the amount of the transaction, whichever is greater. For a prohibited purchase, the transaction amount is the purchase price; for simply holding it illegally, it’s the fair market value at the time of the violation. But if the violation is deemed willful, you’re looking at criminal penalties: a fine up to $1,000,000 or, for an individual, up to 20 years in prison, or both. This isn't a slap on the wrist for a compliance error; it's a massive threat hanging over anyone with an international portfolio, demanding near-perfect attention to a constantly shifting government blacklist. For financial advisors and individuals alike, the compliance risk is enormous, making this a high-stakes policy change.