What you're talking about is a forward proxy. Forward proxy servers do this (and will even proxy SSL traffic).
In the whitepaper, they're actually talking about making a new protocol that measures the one way distance time and compares it to their database of network speeds and distances to determine your location. Their solution is an application-level solution, which depends upon a Forward Proxy to know about the protocol and spoof it correctly.
The problem with their solution is that network speeds are fluid and a computer with a problem (e.g. a local neighborhood node or a legitimately slow client that is delaying all traffic 20-30ms) can make their estimates wildly inaccurate. Even today, Cogent to Level 3 has a 197ms ping in LA. In the paper, they used average speeds for various known networks. This can be mitigated somewhat by measuring client traffic and only counting outliers (e.g. all traffic from a certain area being delayed the same, except for our rogue client) but it still doesn't mitigate the local computer problem.
A second problem with their solution is that it only measures distance - a server in Miami, Florida accepting data from a client in Seattle, Washington is 2732 mi and the same distance (roughly) as Lima, Peru. This means that a client in Lima should pretend to be from Seattle when they connect to their combo VPN/Forward Proxy in Miami. Satellite customers are will almost always have extremely high latency because of the round trip between Earth and the Satellite, even if they're legitimately in the correct area.
In addition, they were only able to make this accurate to about 400km, which means if you have a nearby beneficial country within that range, you can use a VPN in that country and they still won't know.