Six of the 25 largest recipients of SBIR and STTR funding have links to foreign adversaries including China.
Small business innovation and technology grants from federal agencies remain vulnerable to infiltration by Chinese government actors intent on stealing U.S. taxpayer funded research, according to a new investigation.
A new report compiled by Senator Joni Ernst (R., Iowa) and obtained by National Review details the extent to which Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are susceptible to Chinese influence.
Of the 835 grant applications flagged for a foreign influence risk in fiscal years 2023 and 2024, only 303 of them were denied because of the risk, according to agency statistics compiled by Ernst, who leads the Committee on Small Business and Entrepreneurship. Each agency with a SBIR or STTR program, aside from the Department of Energy, provided Ernst due diligence statistics in response to inquiries.
At the Department of Defense, 522 applications were flagged for foreign risk but only 152 were denied, the report shows. In contrast, the National Institutes of Health flagged 144 applications and denied all of them. NASA, another important agency for technological research, flagged 125 applications but only denied one of them because of foreign ties. NASA rejected 107 applications based on merit considerations, rather than the possibility of foreign influence.
Six of the 25 largest recipients of SBIR and STTR funding have links to foreign adversaries including China, but together received close $180 million of federal funding across 297 awards. Ernst has proposed legislation, the INNOVATE Act, to reform the programs by eliminating corporate welfare mills, reducing red tape, and increasing protections against Chinese infiltration.
The SBIR and STTR programs deliver over $4 billion annually to small businesses and are spread out across federal agencies. With the SBIR and STTR Extension Act of 2022, Ernst enacted a due diligence process for agencies to screen grant applications for potential ties to foreign adversaries.
“This alarming report must serve as a wake-up call to Washington,” Ernst said in a statement to National Review.
“The SBIR-STTR programs provide a valuable pipeline of technology that we cannot allow China and other foreign adversaries to steal. Most concerning is that a small group of companies receiving the lion’s share of funding are engaging in problematic business and research relationships with Communist Chinese Party agents.”
The report features a list of companies identified in the report as SBIR corporate welfare mills and their “concerning” affiliations with foreign adversaries. During a hearing in March, Ernst pressed an executive from one of the largest SBIR mills, Triton Systems, about ties between their CEO and Chinese Communist Party-backed CITIC Capital Acquisition Corp.
Triton’s longtime CEO Ross Haghighat was a board member of CITIC, an investment firm with $15 billion of assets under management sponsored by a Chinese state-owned investment conglomerate.
One of Triton’s spinoff companies, FRX Polymers, received $22 million from CITIC and explored a joint venture with a Chinese firm in 2019. The Triton executive testified that Triton has no control over its spinoff companies, but Triton’s CEO was the chairman of FRX until February, Ernst said. Triton has received over $365 million from the SBIR program dating back to 1993, government data shows.
The CEO of Triton Systems appears to have scraped all mentions of the company from his LinkedIn and other social media platforms in the wake of the hearing. Likewise, Triton’s website no longer lists CEO Ross Haghighat as its CEO or a member of its leadership team.
Seeking to combat the problem, Ernst’s INNOVATE Act would clearly define “foreign risk” for due diligence reviews across agencies. The legislation would also create eligibility rules for applicants with foreign ties and codifies collaborations between agencies and the intelligence community on foreign risk reviews.
“My INNOVATE Act creates strong and enforceable due diligence requirements across government to ensure that tax dollars are used to unleash the Golden Age in America and not subsidize research in Beijing,” Ernst added.
Chinese theft of critical U.S. technology research has amounted to hundreds of millions of dollars and aided Chinese “advancements in dual use, critical, and emerging technologies like hypersonic weapons, artificial intelligence, fourth generation nuclear weapons technology, and semiconductor technology,” according to a investigation by the House Select Committee on the Chinese Communist Party and the House Education Committee.
The House investigation detailed how China uses joint research agreements with colleges and universities to acquire critical technology and use it to benefit its military.