1. A way of escaping a difficulty, especially an omission or ambiguity in the wording of a contract or law that provides a means of evading compliance.
2. A small hole or slit in a wall, especially one through which small arms may be fired.
[loop2 + hole.]
The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2003. Published by Houghton Mifflin Company. All rights reserved.
an ambiguity or omission in the law, which enables one to evade it
Collins Essential English Dictionary 2nd Edition 2006 © HarperCollins Publishers 2004, 2006
Interestingly enough I believe that the original loophole is the number 3 meaning. A loophole began as a place where danger originates, now is a place to escape 'danger'.
mark looped Bailey