Is Russia at last facing up to its image problems?

On Tuesday morning, as the extravagant Russian billionaire Boris Berezovsky makes his first appearance in the oak-panelled dock at Bow Street Magistrates Court in central London, just down the road in Westminster, the Russian Economic Forum will open with great fanfare. These two entirely coincidental events could not more starkly present the two contrasting faces of Russia on the international business stage.

Mr Berezovsky, 57, is facing extradition to Russia, where it is alleged he defrauded the authorities of $1.9bn (£1.2bn) in tax from one of his companies. Last week British police, acting on a Russian extradition warrant issued in November 2002, arrested him in London, where he has been living for the last three years in self-imposed exile while seeking permanent residence in the UK.

As Mr Berezovsky, currently on bail, begins what is likely to be a very protracted extradition battle, over at Westminster's Queen Elizabeth Centre, some of Russia's new generation of top businessmen will be trying to persuade their Western counterparts that the day of the oligarchs is over and that Russia is a now good place to take their business. They face uphill work.

President Putin's government would undoubtedly claim that the effort Russia is putting into repatriating the high-profile Berezovsky demonstrates the seriousness of their intent to clean up the Russian business world. But on Tuesday Mr Berezovsky will deny corruption, claiming the extradition is politically motivated and President Putin, a former KGB head, wants to silence him.

Mr Berezovsky is the only child of a builder and a nurse. His fortune is based on Logovaz, set up in May 1989 to offer cheap cars to the Russian people. Later he established a media empire and forged a close relationship with Boris Yeltsin, then Russian President.

Even for oligarchs, business in Russia could be risky. On 7 June 1994, Mr Berezovsky walked out of his Logovaz car dealership headquarters in Moscow and climbed into the back seat of his Mercedes. As they pulled out, a huge car bomb exploded nearby. Mr Berezovsky's driver was decapitated. Shrapnel took out his bodyguard's eye. His own burns healed only after months of expensive treatment in a Swiss clinic.

At the time Moscow was not a safe place to be for a businessman. Battles to divide up the rich spoils of the former Soviet Union spilled over into violence, making the city like Chicago in the 1920s.

Undeterred, Mr Berezovsky built up a portfolio that eventually encompassed oil, aluminium, newspapers and television stations. He was so influential that he received invitations to join Rupert Murdoch on his yacht.

Although he organised the election campaign that brought Mr Putin to power in 2000, the new President, who wants to be seen to distance Russian politics from big business, quickly snubbed him.

But as relations between the two deteriorated, the man who had survived the mob wars decided discretion was the better part of valour, and fled his native country. But from the West, Mr Berezovsky has remained a thorn in Mr Putin's side.

His battles with Mr Berezovsky are only one reason why Mr Putin has a long way to go to persuade the international business community that Russia has turned over a new leaf. In the most recent bribe perception survey from the watchdog Transparency International, Russia was found to be the most corrupt of all the world's major trading nations. Russian companies were also perceived as most likely to use bribes in the developing world.

According to a study by the think-tank Indem, Russian business people pay more than $30bn (£19bn) a year in bribes, a sum roughly equivalent to the revenues of the 2002 state budget and about 1 per cent of GDP. This is harming Mr Putin's attempts to match China in attracting foreign investment. Russia received only $4.43bn in 2000, compared to $48bn in China. Accountants PricewaterhouseCoopers estimate investment could be $10bn higher if Russia improved its reputation for corruption and poor corporate governance.

To his credit, Mr Putin and his government are working relentlessly to tackle the problem. At a corporate governance conference in London last week, organised by leading City PR firm Brunswick, Alexander Arifulin, deputy chairman of the Russian arbitration court, assured the delegates that Russian courts would favour neither the state nor Russian companies if in dispute with Western ones. This had previously been one of the big sticking points for Western businesses.

"After 10 years of legislation, last year the Council of Europe said the Russian system was one of the best," said Mr Arifulin, adding, "We are even-handed." He claimed that 1,000 cases a year were being bought by foreign claimants. But, crucially, these changes have not filtered through to Western investors.

At the same conference, research from consultants SRU and Expert Information Group, a Moscow-based publishing and information firm, claimed that Russia was still perceived as a frontier, "Wild West" economy. More importantly, since Russia defaulted on its debts in 1998, it had been "off the investment map", according to Peter Wallis, managing director of SRU. The survey of 30 UK and US business heads and finance editors showed Russia well down the list of regions attracting foreign investment. As one US fund manager said: "Why invest directly in problematic countries like Russia if you can invest in P&G [Procter & Gamble], who have operations everywhere and know what they're doing?"

To improve the investment climate in Russia, Japan and the European Bank for Reconstruction and Development are funding a joint initiative to create a corporate code of conduct addressing such problems as asset stripping, transfer pricing and share dilution.

The Moscow Brokerage firm Troika Dialog estimates that Russia's reputation as a place where chief executives routinely violate the rights of minority shareholders wipes about $45bn annually off the value of the stock market.

But some change is taking place, as witnessed by BP's $7bn investment last month in a joint venture with TNK to create Russia's third biggest oil company. Crucially, despite the 50:50 split in ownership, BP has management control. Shell has also admitted sniffing around Russian oil companies and has said it has no intention of being the last buyer in the market. And Russian fund manager Hermitage Capital is preparing its latest report on Gazprom, Russia's main gas company, in a bid to improve the utility's corporate governance and transparency.

But with Mr Berezovsky's court case likely to keep corruption firmly in the headlines for months to come, investment in Mr Putin's "new" Russia may remain slow.