The 17 judges ruled unanimously that Switzerland violated Youssef Moustafa Nada's "right to respect for private and family life" and the "right to an effective remedy" enshrined in the European Convention on Human Rights.
Nada, in his eighties, had been living since 1970 in Campione d'Italia, an Italian enclave inside the Swiss canton of Ticino that is separated from the rest of Italy by mountains and a lake.
Between 1999 and 2002, the UN Security Council adopted a series of resolutions in response to attacks by Osama bin Laden's al-Qaeda network, including a travel ban for individuals on the sanctions list.
Because of his suspected financial ties to al-Qaeda, links he denies, Nada's name was added to the UN list -- on the initiative of the United States -- and Switzerland launched a probe into his activities.
In 2002 on a visit to London, he was arrested and deported back to Italy, and his money confiscated. Later, Ticino revoked his special border-crossing permit and Switzerland denied his requests to enter for medical reasons.
After Italy and Switzerland dismissed their cases against him, Nada requested to be taken off the sanction list, but Switzerland said it was up to the UN to clear him.
It wasn't until years later, in 2009, that Nada's name was removed.
The judges concluded "that the Swiss authorities had not sufficiently taken into account the realities of the case, especially the geographical situation of the Campione d'Italia enclave, the duration of the measures imposed or the applicant's nationality, age and health."
They added that "the applicant did not have any effective means of obtaining the removal of his name and therefore no remedy in respect of the violations of his rights."
The Strasbourg-based court said in a statement: "As it had been possible for Switzerland to decide how the Security Council resolutions were to be implemented in its legal order, it could have been less harsh in imposing the sanctions regime on the applicant."
The court ordered Switzerland to pay Nada €30,000 ($39,000).