A new report released by U.S. Senate Committee on Small Business and Entrepreneurship Chair Joni Ernst (R-Iowa) has sounded the alarm, revealing that billions of dollars in sensitive American intellectual property are vulnerable to theft by China.
The report identifies critical loopholes in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, stemming from a lack of consistent due diligence standards, which America’s adversaries are actively exploiting.
The findings have spurred Chair Ernst to intensify her efforts to pass the INNOVATE Act, legislation aimed at closing these security gaps and safeguarding technology crucial to U.S. national security.
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Furthermore, Ernst has called on Secretary of Defense Pete Hegseth to immediately investigate and potentially halt all funding to six companies highlighted in the report. These companies, despite a due diligence vetting system implemented by the Department of Defense (DOD), allegedly received nearly $180 million in SBIR-STTR funding between 2023 and 2024 while maintaining troubling connections to China.
The SBIR and STTR programs, designed to foster innovation by awarding federal research grants to small businesses, have distributed over $75 billion since 1982, according to Bloomberg. However, the report from Senator Ernst underscores persistent vulnerabilities. Politico noted that the GOP report found small business innovation program grant applicants flagged for foreign risk still managed to receive federal funding.
National Review highlighted that the report indicates small business grants across the federal government are susceptible to Chinese influence. To counter this threat, Ernst’s INNOVATE Act proposes to clearly define “foreign risk” for due diligence reviews across all participating agencies. The legislation would also establish clear eligibility rules for applicants with foreign ties and mandate collaboration between agencies and the intelligence community on foreign risk assessments.
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This is not the first time concerns have been raised about foreign exploitation of these programs. As Politico Morning Defense pointed out, Congress previously revised SBIR and STTR rules in an attempt to prevent funds from flowing to entities linked to the Chinese military after the DOD made such discoveries in 2021. The report suggests these earlier measures have not been entirely effective.
The urgency of the situation is compounded by the upcoming expiration of the current SBIR/STTR program authorization on September 30th. Federal News Network reported that Ernst’s INNOVATE Act seeks to extend the programs for another three years, until 2028, while continuing to pressure agencies to address concerns over so-called “SBIR mills” and foreign influence on grant awards.
Senator Ernst’s investigation and proposed legislation signal a renewed push to protect American innovation and ensure that federally funded research does not inadvertently benefit strategic competitors. The call for an investigation into the six named companies underscores the immediate concerns raised by the report’s findings. The coming weeks are expected to see further debate and action as Congress considers the reauthorization of these vital, yet vulnerable, innovation programs.
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