Can you make a film about corruption in Africa and not be corrupted?

A new documentary on blood diamonds from Lars von Trier's company is as controversial as anything the director has done himself

It is not often that film companies preparing new movies need to set aside thousands of dollars in bribes, and for buying blood-diamonds, in their budgets. This was what happened to Lars von Trier's Zentropa when the Danish outfit set to work on its new feature documentary, The Ambassador (which premieres in Sundance this month).

The film, largely shot in Liberia and the Central African Republic, follows the faltering attempts of its director, the satirical journalist Mads Brugger, to gatecrash the nefarious world of African diamond-smuggling.

Brugger's plan was to "operate freely beyond all moral boundaries while still being a respected member of society... what I am talking about of course is life as an African diplomat."

The stakes are very high indeed. As a passport broker tells him early on in the film, the fake diplomatic credentials he needs can cost as much as a million euros. If his adventure turns out badly, he is warned, he is very likely to end up "dead in a ditch". However, if he has the magic papers, he will be able to wander around with $10m (£6.5m) in his briefcase and no one will stop him.

To ease his way into his new role in the Central African Republic, Brugger needs plenty of what he calls "envelopes of happiness". These are packages stuffed with cash that his minders can discreetly hand over to politicians and middle men who promise to get him nearer to the diamonds.

"If the Congo is the heart of darkness, this [the Central African Republic] is the appendix," Brugger suggests. "Of course, a country such as this works as a magnet for white men with hidden agendas."

Brugger's producer Peter Engel was the one entrusted with coming up for the cash for the film-maker's false passport and his bribery money.

"The problem with the budget was not the passport. We bought the passport and we got an invoice," Engel recalls. "The problem was the envelope of happiness, when we were paying $30,000 to a lawyer in Liberia to get access to the President." Now Engel is in the unenviable position of having to explain to one of his main financiers – the state-backed Danish Film Institute – how the production team for the movie managed to spend thousands of dollars without getting so much as a receipt.

"This is money we can't show them invoices for but when you see the film, it's a kind of invoice [itself]," the producer suggests. Using hidden cameras, the film-makers filmed themselves handing over the bribes – so at least there is evidence they haven't held on to the money themselves.

The paradox is that Brugger and his team were obliged to act corruptly in order to make a film about corruption. The Ambassador is both comical and uncomfortable to watch. Brugger comes across like a sleazy Danish version of Tintin, albeit without a dog, or one of those shady characters up to mischief in Africa that you read about in Graham Greene novels. He acts up the part of the white colonialist, dressing in safari suits and knee-length boots and affectedly smoking pipes or cigarettes through holders. He is every bit as outrageous on screen as his patron Lars von Triers is off it.

Brugger's "front" is that he is a businessman as well as a diplomat, and that he plans to open up a match factory. With this in mind, he recruits a small army of Pygmy workers. The strangest, least politically correct scene in the film shows him in a Mike Tindall-like dance with these new associates, who have managed to get very drunk at his expense. Almost equally bizarre is the footage showing him being rowed downriver by the Pygmies, seemingly the lord of all he surveys, as Woody Guthrie's "This is My World" plays on the soundtrack.

The film-makers have an eye for macabre comedy. Brugger makes absurd diplomatic speeches. When he finally clinches a deal with diamond-mine owner Monsieur Gilbert, he toasts him with champagne – the very same vintage (he tells the nonplussed Gilbert) that Adolf Hitler drank just before shooting himself. At the point Brugger finally gets his hands on some diamonds, he promptly drops them on the floor and is obliged to scramble round on his hands and knees, trying to retrieve them from underneath the sofa.

At the same time, the dangers facing the film-makers are also self-evident. As a would-be diplomat, Brugger films all his meetings secretly.

One man who is especially compelling on camera is a former French Foreign Legionnaire, Guy-Jean Le Foll Yamande, who is the head of security in the Central African Republic. He knows where all the bodies are buried – which perhaps explains why he is assassinated not long after his meeting with Brugger.

For producer Engel, one of the biggest challenges in making The Ambassador was ensuring that the film-makers returned to Denmark safely.

"The Central African Republic is a very crazy country. You can 'buy' a killing for like $50," he reflects. And in spite of all the money he spent, Brugger didn't have the correct papers. There was a constant danger he could be exposed or arrested.

Engel had also produced Brugger's previous documentary, The Red Chapel, which saw the film-maker venturing to North Korea. "I knew that when Mads gets these kind of ideas, you just can't stop him," Engel says of his collaborator. As much attention was paid to security as to film-making. "I worked together with security services who were located in central Africa," the producer says.

The film-makers are expecting they may now be sued by one or other of the passport brokers who feature in the film. International distributors are reportedly alarmed by the mordant humour and by the caricatured depiction of the Pygmies. In other words, The Ambassador is provoking the same level of controversy that Zentropa regularly experiences when it is making Lars von Trier's movies.

"All the scenes with the Pygmies I find scary but also, in an ironic way, funny," Engel says. He defends the film: "In Denmark, we are quite ironic about a lot of stuff but it's not racism. It's scary because you see how people in the Central African Republic are looking at their Pygmies as people. We have the same discussion in Denmark about how to treat the people from Greenland and in Australia, they have the same with the Aborigines. The strong thing with Mads's film is the satirical angle. That is a very good platform to discuss this kind of stuff."

Having shown the venality and ruthlessness of politicians, diplomats and diamond smugglers in central Africa, Brugger and Engel pare now turning their eyes toward the equally turbid world of Brussels and European politics. Their next documentary is about an Italian member of the EU Parliament who fell out of his window in suspicious circumstances in 1983. This politician, who was in charge of tobacco subsidies for the EU, was facing fraud and corruption charges. Engel is also planning a big-budget TV drama series called Babylon about EU corruption, based on the same story. Oliver Hirschbiegel (who directed the Hitler biopic Downfall) is in line to helm the project. Meanwhile, Brugger still has his diplomatic credentials for Liberia. If he tires of making films, another (possibly more lucrative) career remains open to him.

'The Ambassador' premieres at the Sundance Film Festival, 19 to 29 January