This work explains the effect of failure on permeability anisotropy and dilation in sands. Shear failure is widely observed in field operations. There is incomplete understanding of the influence of shear failure in sand formations. Shear plane orientations are dependent on the stress anisotropy and that view is confirmed in this research. The effect of shear failure on the permeability is confirmed and calculated. Description of permeability anisotropy due to shear failure has also been discussed. In this work, three-dimensional discrete element modeling is used to model the behavior of uncemented and weakly cemented sand samples. Mechanical deformation data from experiments conducted on sand samples is used to calibrate the properties of the spherical particles in the simulations. Orientation of the failure planes (due to mechanical deformation) is analyzed both in an axi-symmetric stress regime (cylindrical specimen) and a non-axi-symmetric stress regime (right cuboidal specimen). Pore network fluid flow simulations are conducted before and after mechanical deformation to observe the effect of failure and stress anisotropy on the permeability and dilation of the granular specimen. A rolling resistance strategy is applied in the simulations, incorporating the stiffness of the specimens due to particle angularity, aiding in the calibration of the simulated samples against experimental data to derive optimum granular scale elastic and friction properties. A flexible membrane algorithm is applied on the lateral boundary of the simulation samples to implement the effect of a rubber/latex jacket. The effect of particle size distribution, stress anisotropy, and confining pressure on failure, permeability and dilation is studied. Using the calibrated micro-properties, simulations are extended to non-cylindrical specimen geometries to simulate field-like anisotropic stress regimes. The shear failure plane alignment is observed to be parallel to the maximum horizontal stress plane. Pore network fluid flow simulations confirm the increase in permeability due to shear failure and show a significantly greater permeability increase in the maximum horizontal stress direction. Using the flow simulations, anisotropy in the permeability field is observed by plotting the permeability ellipsoid. Samples with a small value of inter-granular cohesion depict greater shear failure, larger permeability increase and a greater permeability anisotropy than samples with a larger value of inter-granular cohesion. This is estimated by the number of micro-cracks observed. / text