Duplicate object found in source - ignoring

The detection of a dupe in sync is just that the names are identical.

That is a bug - it means the crypt remote isn’t passing on the merge request to the underlying remote properly.
I made an issue about that https://github.com/ncw/rclone/issues/2233

However you can dedupe the underlying remote and it should get rid of that duplicated directory for you. Don’t rename any of the duplicates though as they will become invisible in the crypted remote.