I am using an iMac with Ventura 13.5.2.
I save files in the cloud (OneDrive).
I use Cryptomator to encrypt sensitive files before they are uploaded to OneDrive.
Cryptomator looks just like another drive on my Mac and is supposed to behave in the same way as any external drive attached to a Mac.
Same thing for OneDrive.
Here is a summary of my testing of the copy and move function Hazel:

So, as you can see, single (or multiple) file copying works in every direction.
But when it comes to copying folders and their contents there are some combinations of copying (or moving) between drives that just don't work.
Here is an example of one of the non-working rules:

Here are the logs of the errors:
Copying from internal Mac drive to Cryptomator
2023-09-19 00:43:01.201 hazelworker[19557] Processing folder Mac Source (forced)
2023-09-19 00:43:03.304 hazelworker[19557] On Mac sub 1: Rule New Rule matched.
2023-09-19 08:25:14.076 hazelworker[22141] Processing folder Mac Source (forced)
2023-09-19 08:25:16.180 hazelworker[22141] Test folder 2 with files: Rule Copy folder structure matched.
2023-09-19 08:25:16.200 hazelworker[22141] Error copying file from /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Source/Test folder 2 with files to /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation/Test folder 2 with files: Error Domain=NSPOSIXErrorDomain Code=2 "No such file or directory"
2023-09-19 08:25:16.206 hazelworker[22141] [Error] Copy failed: Could not copy file Test folder 2 with files from folder /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Source to folder /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation/Test folder 2 with files
2023-09-19 08:25:16.210 hazelworker[22141] Test folder 1 (empty): Rule Copy folder structure matched.
2023-09-19 08:25:16.231 hazelworker[22141] [File Event] File copied: Test folder 1 (empty) copied from folder /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Source to folder /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation.
2023-09-19 08:25:16.234 hazelworker[22141] Received abort event.
2023-09-19 08:25:16.235 hazelworker[22141] Done processing folder Mac Source
Copying folders from OneDrive to Internal Mac drive
2023-09-19 08:30:23.868 hazelworker[22179] Processing folder Onedrive Source (forced)
2023-09-19 08:30:25.906 hazelworker[22179] Test folder 2 with files: Rule Copy folder structure matched.
2023-09-19 08:30:25.906 hazelworker[22179] Error copying file from /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source/Test folder 2 with files to /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Destination/Test folder 2 with files: (null)
2023-09-19 08:30:25.906 hazelworker[22179] [Error] Copy failed: Could not copy file Test folder 2 with files from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Destination/Test folder 2 with files
2023-09-19 08:30:25.910 hazelworker[22179] Test folder 1 (empty): Rule Copy folder structure matched.
2023-09-19 08:30:25.910 hazelworker[22179] Error copying file from /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source/Test folder 1 (empty) to /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Destination/Test folder 1 (empty): (null)
2023-09-19 08:30:25.910 hazelworker[22179] [Error] Copy failed: Could not copy file Test folder 1 (empty) from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Users/myname/Documents iMac Pro/Newly scanned iMac Pro/Mac Destination/Test folder 1 (empty)
2023-09-19 08:30:25.913 hazelworker[22179] Received abort event.
2023-09-19 08:30:25.914 hazelworker[22179] Done processing folder Onedrive Source
Copying folders from OneDrive to OneDrive
2023-09-19 08:33:16.893 hazelworker[22205] Processing folder Onedrive Source (forced)
2023-09-19 08:33:19.003 hazelworker[22205] Test folder 2 with files: Rule Copy folder structure matched.
2023-09-19 08:33:19.004 hazelworker[22205] Error copying file from /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source/Test folder 2 with files to /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Destination/Test folder 2 with files: (null)
2023-09-19 08:33:19.004 hazelworker[22205] [Error] Copy failed: Could not copy file Test folder 2 with files from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Destination/Test folder 2 with files
2023-09-19 08:33:19.007 hazelworker[22205] Test folder 1 (empty): Rule Copy folder structure matched.
2023-09-19 08:33:19.008 hazelworker[22205] Error copying file from /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source/Test folder 1 (empty) to /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Destination/Test folder 1 (empty): (null)
2023-09-19 08:33:19.008 hazelworker[22205] [Error] Copy failed: Could not copy file Test folder 1 (empty) from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Destination/Test folder 1 (empty)
2023-09-19 08:33:19.011 hazelworker[22205] Received abort event.
2023-09-19 08:33:19.011 hazelworker[22205] Done processing folder Onedrive Source
Copying folders from OneDrive to Cryptomator
2023-09-19 08:35:34.979 hazelworker[22221] Processing folder Onedrive Source (forced)
2023-09-19 08:35:37.083 hazelworker[22221] Test folder 2 with files: Rule Copy folder structure matched.
2023-09-19 08:35:37.115 hazelworker[22221] Error copying file from /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source/Test folder 2 with files to /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation/Test folder 2 with files: Error Domain=NSPOSIXErrorDomain Code=2 "No such file or directory"
2023-09-19 08:35:37.124 hazelworker[22221] [Error] Copy failed: Could not copy file Test folder 2 with files from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation/Test folder 2 with files
2023-09-19 08:35:37.128 hazelworker[22221] Test folder 1 (empty): Rule Copy folder structure matched.
2023-09-19 08:35:37.155 hazelworker[22221] [File Event] File copied: Test folder 1 (empty) copied from folder /Users/myname/Library/CloudStorage/OneDrive-Personal/Onedrive Source to folder /Volumes/yw9tOuKg-Quh/Cryptomator Desitnation.
2023-09-19 08:35:37.158 hazelworker[22221] Received abort event.
2023-09-19 08:35:37.158 hazelworker[22221] Done processing folder Onedrive Source