Canadian publication The Globe and Mail reported that Meng Wanzhou, the global chief financial officer at the Chinese telco, faces extradition to the US.
Meng is the daughter of Huawei founder Ren Zhengfei, and also sits as the deputy chair of the global telco giant.
Huawei is one of the world's largest telecommunications equipment and services providers.
Huawei didn't immediately reply to a request for comment from Fortune.
Sources previously told Reuters that U.S. authorities had been investigating Huawei for allegedly shipping products to Iran in breach of USA sanctions.
The firm has confirmed the arrest of Ms Meng, which happened on 1 December, but said it was "not aware of any wrongdoing" by its CFO, who will appear in court for a bail hearing on Friday.
Further details on the allegations of sanctions busting against Meng are yet to be revealed because of a gag order reportedly sought by her.
USA media have reported that the U.S. is investigating Huawei for potential violations of United States sanctions against Iran.
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USA national security officials have said Huawei poses a security risk due to its alleged close links to the Chinese government.
David Mulroney, a former Canadian ambassador to China, said USA and Canadian business executives could face reprisals in China.
Earlier this year, it barred U.S. companies from exporting to Chinese telecommunications firm ZTE over violations of the Iranian sanctions, effectively shutting down the firm.
Asked about the report that Huawei was under investigation, Hua said in April, "We hope the USA will refrain from taking actions that could further undermine investor confidence in the USA business environment and harm its domestic economy and normal, open, transparent and win-win worldwide trade". Mark Warner conveyed "grave concerns" over the possibility that the Chinese government might be using Huawei equipment to spy on and interfere with foreign governments.
News of the arrest came on the same day that BT announced it would be removing Huawei-manufactured equipment from its 3G and 4G mobile networks.
Fellow Chinese technology giant ZTE had similarly been removed from the US trading blacklist at the start of previous year by the US Department of Commerce's Bureau of Industry and Security following the company's guilty plea to illegally exporting products to Iran.
The Chinese Embassy in Canada, however, is kicking up a diplomatic fuss.