A six-month investigation has been conducted by the FA and referred to the National Crime Agency with there being a risk of serious corruption and potential criminality.
Daily Mail reports that the FA's inquiry began after they were alerted to suspicious patterns of betting relating to Xhaka's yellow card in the December fixture.
The report claims that there is no wrongdoing on the part of Xhaka nor any other Arsenal players.
The yellow card offence occurred when referee Andre Marriner booked Xhaka in the 86th minute for time-wasting.
Xhaka stands over the ball in his own half, taking his time over taking a free-kick for Arsenal.
A pay-out of £250,000 was earned on the betting exchange, which allows users to place bets with other users.
The suspicious bet was reported by leading bookmakers to the FA and it far exceeds what is usually wagered for bets involving yellow cards.
The odds on Xhaka picking up a yellow card were also dramatically higher in the last 10 minutes of the game than prior to kick-off.
Xhaka has a well-known poor disclipany record for Arsenal, having picked up 68 yellow cards and 5 red cards during his time at the Emirates Stadium.
Arsenal midfielder Granit Xhaka may be scuppering a deal for Leicester City midfielder Youri Tielemans
Away from the controversy regarding Granit Xhaka's suspicious yellow card picked up against Leeds, the Swiss midfielder is proving somewhat problematic for the Gunners.
The north London side's failure to offload the 29-year-old is putting a potential deal for Leicester City midfielder Youri Tielemans at risk.
The Athletic reports that the Gunners would be much better placed in their £25 million pursuit of Tielemans, 25, if they sell Xhaka.
Xhaka nearly left the Emirates Stadium last year with a move to Serie A side AS Roma touted.
But the potential transfer fell through and Jose Mourinho's side have since signed out-of-contract Manchester United midfielder Nemanja Matic this past week.
It remains to be seen if Xhaka's continued presence at the Gunners denies Tielemans a move to Mikel Arteta's side.
Xhaka made 30 appearances last season, scoring one goal and contributing two assists.
Meanwhile, Tielemans made 50 appearances for the Foxes, scoring 7 goals and contributing 5 assists.