A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system. Loopholes are searched for and used strategically in a variety of circumstances, including taxes, elections, politics, the criminal justice system, or in breaches of security, or a response to one's civil liberties.
Historically, arrow slits were narrow vertical windows from which castle defenders launched arrows from a sheltered position, and were also referred to as "loopholes". Thus a loophole in a law often contravenes the intent of the law without technically breaking it, much as the small slit window in a castle wall provides the only ready means of gaining entry without breaching or destroying the wall or a gate. For example, in some places, one may avoid paying taxes to the jurisdiction by forming a second residence in another location, or a commercial property can be built in a residential zone if it is made also for residential use.
In a security system, the one who breaches the system (such as an inmate escaping from prison) exploits the loophole during the breach. Such weaknesses are often studied in advance by the violator, who spends time observing and learning the routine of the system and sometimes conducts surreptitious tests until such a loophole can be found.
- In 2005 Wal-Mart planned a store in Calvert County, Maryland. While a law in the county restricted the size of a retail store to 75,000 square feet (7,000 m2), Wal-Mart considered a plan that would dodge this restriction by building two separate smaller stores. Though Wal-Mart later withdrew this controversial plan, the plan highlighted a legal loophole.
- Parts of the interiors of U.S.‑bound Ford Transit Connect were stripped immediately upon importation to circumvent the 1963 Chicken Tax, which imposes a 25% tariff on imported light trucks. Ford imports all Transit Connects as "passenger vehicles" with rear windows, rear seats, and rear seat belts. The vehicles are exported from Turkey, arrive in Baltimore, and are converted into "light trucks": rear windows are replaced with metal panels and rear seats removed. The process exploits a loophole in the customs definition of a commercial vehicle. As cargo does not need seats with seat belts or rear windows, the mere presence of those items exempts the vehicle from light truck status. The conversion process costs Ford hundreds of dollars per van, but allows it to save thousands of dollars' worth of taxes.
- Although the sale of untested drugs is illegal in the US and UK, manufacturers have circumvented legislation by labelling products "not for human consumption". Consumers still buy and use the products as drugs but vendors cannot be prosecuted as they have no control over the consumer after the point of sale.
- YouTube has blocked some copyrighted music from being uploaded; similarly, Limewire shut down for similar reasons concerning music copyright and the free circulation of it online. However, the Nunica Internet Social Alliance was founded as a method to exploit a loophole in YouTube's song blocking by making promo videos for freely downloadable MP3 albums from Nisa Records which contain the blocked music, but without the blocked music in the promo videos, in which the albums can be found on underground file hosting sites. With the release of Nisa's YouTube Rejects Volume 3, Nisa Records has also marketed music to a Germany YouTube audience with music that was formerly blocked in Germany.
- Flipkart.com charges a minimal amount for the facility of cash-on-delivery if the total bill amount is below Rs. 500. People circumvented the conditions by ordering any other product with the desired product so that the total bill is above Rs. 500. During the delivery of the products, the customer would accept the desired product and cancel the other product. This way the customer would pay the price of the desired product only without any delivery charges.
- Castle Loopholes at www.castles.me.uk
- Paley, Amit R. (May 17, 2005). "Wal-Mart Drops Plan for Side-by-Side Calvert Stores". Washington Post. Retrieved May 11, 2010.
- "To Outfox the Chicken Tax, Ford Strips Its Own Vans". Wall Street Journal, Matthew Dolan, September 22, 2009. September 23, 2009.